1958 Revisited

Thanks to Sydney Williams, who pointed out earlier today that the DJIA was up 34% in 1958. You may recall in my earlier missive today, I mentioned that the all-time worst GDP quarter since World War II was the first quarter of 1958, when the economy contracted at a 10.4% annual rate.

As we have often said, the market can go up (indeed, will go up) while the news is still terrible. The market in 1958 clearly had priced in the bad news. The market today has priced in a lot of bad news. Whether it has priced in all the bad news will, of course, be played out the next few weeks and months.

There are indications that a lot of news is discounted. Last Friday, before the Geithner rally, the market violated the 2002 low of 762 on the S&P 500 before turning up to close at 800, but there were fewer new 52-week lows on Friday (1,119) than there were on Oct. 10 (2,477) despite the market average going lower. Forty percent of stocks listed on the Russell 3000, a very broad-based list of corporate America, are trading at less than $10 a share. The S&P has not been this far below its 200-day moving average since 1932. The spread between the S&P and the 200-day average is better than 40%, and that is the widest since (I believe) 1931, when it reached 49%.

Also, as I mentioned earlier, the dividend yield on the S&P is above the 10-year Treasury yield for the first time since 1958. The S&P pays $28.85, which, on Friday's close of 800, would be a yield of 3.6%. The 10-year is yielding 3.3%. BusinessWeek points out that 11,584 mutual funds out of 11,585 are down for the year and the one that isn't down is flat, not up.

---

At the time of publication, Farrell had no positions in the stocks mentioned.

Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.