In Catching Fire, Jeniffer Lawrence’s Katniss Everdeen is forced to repeat the battle royale that she won in the Hunger Games–with even higher stakes. Stocks are catching fire too, but in a far-different fashion as both the Dow Jones Industrial Average and the S&P 500 closed the week at record highs.
Lionsgate The Jones Industrials rose 0.6% to 16,064.77, a record high, while the S&P 500 gained 0.4% to 1.804.76, also an all-time high. Big Dow winners this week include JPMorgan Chase (JPM), which rose 4.7% this week after agreeing to a $13 billion settlement with the government, Chevron (CVX), which gained 3.3% to $124.03 after it suspended a North Sea oil project, and United Health Group (UNH), which advanced 2.6% to $73.74. In the S&P 500, Biogen Idec (BIIB) rose 17% to $285.62 after the European Union protected one of its drugs from competition and Tyson Foods (TSN), finished up 11% at $31.82 after reporting surprisingly good earnings.
It was also the S&P 500′s seventh consecutive week of gains. S&P Capital IQ’s Howard Silverblatt puts the winning streak in context:
It was "Lucky 7" on Wall Street, as the market posted its seventh consecutive gain in a row with a 0.37% weekly gain, 6.76% cumulatively for the seven weeks. The last seven week run ended in February with an 8.37% gain. The last eight week run was actually nine weeks, ending in January 2004, with a 10.26% gain; the record is Lucky 13, set in April 1957, with a 9.31% gain.
Deutsche Bank’s David Bianco argues that stocks, despite trading at 25 times their cyclically adjusted earnings, might not be as expensive as they first seem:
The Shiller PE doesn't adjust for EPS growth that should come from retained earnings. This is a major pitfall because dividend payout ratios have declined tremendously since 1900-1950, from over two-thirds to less than a third the last decade. Not adjusting past EPS for growth that should come from retained earnings is a major distortion that compounds with time and makes the PE on
10yr inflation only adj. EPS from Graham & Dodd's time incomparable to such a PE on EPS from the last decade. It also means that the EPS underlying the Shiller PE significantly underestimates today's normal EPS. This makes the observed Shiller PE unreliable in both absolute terms and relative to history.
We modify Shiller's PE by making an equity time value adjustment (ETVA) to historical EPS. We raise past EPS by a nominal cost of equity estimate less the dividend yield for that period. On this basis, avg. 10yr trailing ETVA non-GAAP S&P EPS is $109 vs. $90 for inflation only adj. 10yr trailing non-GAAP EPS. The Shiller method avg. 10yr inflation adj. GAAP EPS is even lower at $76. The Bianco PE is 16.5 now vs. an inflation only adj. PE of 20. The Shiller PE is 25. The 1960-2013 average for these PEs are 15.6, 18.2 and 19.6, respectively.
Citigroup’s Tobias Levkovich urges investors not to get too giddy–or too terrified. He writes:
A quick perusal of our summary dashboard signals is not that inviting for the S&P 500 despite an accommodative Fed and still positive credit conditions and longer-term valuation metrics. Sentiment is now warning of a euphoric investor base while the Citi Economic Surprise Index and intra-stock correlation are also posting worrisome signs. To be fair, the situation was far more devastating in late 2007 and fund managers should not equate current concerns with the need for outright negativity entering the financial crisis of 2008-09.
The environment for equities back in mid-2012 was superb, but after a 40% gain since then, a few things have changed. When investors were worried about "Grexit" in mid-2012, the stability of the banking system and earnings-related anxiety amidst political battles and slowdowns in some of the developing economies, markets looked poised for appreciation as all the data was coming up roses. Indeed, the outlook was far more intriguing even in January 2013 when valuation was providing short-term positives along with the benefit of the sentiment readings for 1H13's potential. But, the backdrop for the near term is not all that upbeat anymore and it must be noted given the pushback of seasonal strength and continued central bank driven liquidity. In the past, sticking with the disciplines has served investors well and there does not seem to be a need to alter the "conditional probabilities" approach just to fit in with current enthusiasm.
Good advice, especially when it’s not clear whether the market is catching fire in a good way, or as a prelude to something more sinister.
AP 
A large insider purchase suggests confidence in Valeant's strategy:
Shar! es at 10-Year HighEven though shares are at 10-year highs, the valuation isn't ridiculous. Gap is trading at 16.9x forward estimates. While this is above the average of the S&P 500 at 15.5x, it is under the company's 10-year average of 17.1x.Fall fashions are now coming into the stores. On Aug 8, Banana Republic will launch the limited edition Issa London collection. This collection is highly anticipated. Issa London is best known for designing the Duchess of Cambridge's engagement dress in 2010.For retailers, there's a lot riding on getting the fashion right. Gap has managed to do just that over the last several quarters.If you're an investor looking for a retail play, Gap is a standout among its peers.Want More of Our Best Recommendations? Zacks' Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential. Learn More>>Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.
