The Great Vince Farrell and I talked about the new high list on Squawk On The Streetthis morning. A significant number of S&P 500companies are hitting all-time highs. The S&P 400has been a stellar performer having benefitted from surging mid-cap share prices.
Studying the list of S&P 500 that have hit their all-time high since the recovery began in July is revealing.
The first 25 are Consumer stocks.
A couple of things to note:
First, several of the retailers are "high-end" retailers, which makes sense because there has been a dramatic increase in wealth concentration in this country over the past 10-20 years. The benefits of our economic expansion over that time frame have largely accrued to the wealthiest Americans, and these Americans have had much more money to spend on luxury items. In other words, the consumers that typically shop at these types of stores have not been nearly as affected by the economic weakness - instead, the rich have gotten richer. I would characterize Coach, Polo Ralph Lauren, Tiffany, and Este Lauder as "high-end" retailers.
Second, I believe that a few of the retailers listed have benefited from the demise of the US auto manufacturing industry. For many years, the auto dealers offered 0% financing on new cars in this country. These offers essentially borrowed demand from the future and increased the vehicle population in the US. As the recession hit, new car sales dropped dramatically, and people started to hold on to their cars longer. Therefore, both the increase in the vehicle population and the aging of that vehicle population has benefited auto parts retailers like O'Reilly and Autozone. In addition, CarMax has benefited by being a dealer of used cars.
Next, we can see several retailers below that have benefited from the "trade down" effect. These companies - which include Darden, Family Stores, McDonald's, Yum Brands, Limited, and Ross Stores - all have benefited from the moderate-income consumer's efforts to save more and spend less in the face of weak labor and housing markets.
Next, we can identify several sellers of consumer staple-type products that have done a very good job at penetrating emerging markets where the demand profile is much better. I would put Clorox, Hormel, Mead Johnson, Brown-Forman, McCormick, Nike, Philip Morris, and Hasbro in this group.
Amazon.com has simply done the best job at selling things over the internet. And the others I would just chalk up to strong execution!
There is a fair sprinkling of mid-cap stocks (S&P 400 has done VERY well). Several "best of breed" names and more than a few healthcare. A lot of leadership is concentrated in economically sensitive names like Pioneer Natural Resources.
There is a certain consumer-centric theme here that has me wondering if the US Consumer is resilient or not very bright. I sense that pent up desire to consume is driving same store sales numbers rather than improving incomes or a resurgence in discretionary dollars. This conslusion colors the US Consumer as 'not very bright.'
Larry Kudlow was giving me a hard time Friday night, suggesting that I focus my investing on the S&P 400 pointing out that the big, blue-chips have been boring. I'm always wary of chasing performance. In particular, the temptation to follow the herd into whatever is working now has always led to trouble. In 1999 the cover of the "The Economist" read "Drowning In Oil." Oil was $11 per barrel, and Investors were selling it and buying dot coms and tech stocks as the NASDAQ was nearing it's all-time high. We favor paring positions making new highs and adding to those lagging in share price (as long as those companies are executing on operations). Babe Ruth said, "Hit 'em where they ain't." We are always happy to agree with the Babe!
Multiple-national, blue-chip companies are our preference today. Balance sheets are very solid, and dividends are strong and often higher than the 10 year Treasury Note.
Disclosure: Mr. Farr owns O'Reilly and Yum Brands mentioned in this post.
Michael K. Farr is President and majority owner of investment management firm Farr, Miller & Washington, LLC in Washington, D.C. Mr. Farr is a Contributor for CNBC television, and he is quoted regularly in the Wall Street Journal, Businessweek, USA Today, and many other publications. He has been in the investment business for over twenty years.