And let's not forget cash.
Right now, U.S. corporations hold record amounts of cash on their balance sheets. Buy the "average" S&P 500 component today, and 21% of its share price can be attributed to cold, hard cash. That's unheard of.
That also greatly diminishes the risks of being an investor today. Take that record cash out of the S&P's P/E ratio, and suddenly we're looking at an earnings multiple of 12.2 for the broad market. Yup, stocks are still cheap.Myth 3: The Market's Internals Are Weakening Even though we're not seeing much high-conviction buying in the broad market right now, the technicals have been stellar. You don't have to be an expert technical analyst to see what's going on in stocks right now. Just take a look at this chart of the S&P 500: If there's a single word to describe the rally in stocks since November, it's "orderly." More important, the price channel in the S&P 500 has been highly predictive. It indicated a key buying opportunity in stocks as recently as last week when the S&P bounced off of its 50-day moving average. From a technical standpoint, we're in a "buy the dips market" right now. Quality names have been leading lately, with large-cap dividend payers showing stellar relative strength. That's indicative that we're still in the early phases of this rally. Outperformance in more-speculative names doesn't typically happen until the later phases of a bull market, when retail investors have already bought into the idea that stocks are back in favor. But one important thing no one's mentioning about this recent rally is that the S&P has managed to make a technically textbook climb in spite of the fact that its biggest components (names such as Apple ( AAPL) and Exxon Mobil ( XOM)) have been languishing at best. That means that other names have had to pick up the slack; it points to robust market internals. Zoom out to a longer-term timeframe, things look every bit as orderly. The broad market has been in a well-defined uptrend from its 2009 lows all the way up to the most recent big correction in the fall of 2012, and until that changes, it makes sense to be a buyer.