Saturday, March 17, 2012

US futures flat after Dow hits post-crisis high

US stock market futures flat a day after Dow hits highest point since 2007; banks rising

U.S. stock market futures are little changed a day after stocks posted the biggest gains of the year.

Dow Jones industrial average futures were up 5 points to 13,115.

The index closed at its highest level since 2007 on Tuesday — within 1,000 points of its record — after a day of encouraging signs for the economy: Retail sales were strong, the Federal Reserve was optimistic and most of the nation's biggest banks got a clean bill of health.

The Nasdaq composite index also reached a milestone on Tuesday, closing above 3,000 for the first time since December 2000. Inpremarket trading Wednesday, Nasdaq 100 futures edged up 0.50 to 2,694.50.

S&P 500 futures added 0.3 points to 1,391.

Bank stocks were gaining modestly in premarket trading after surging Tuesday. JPMorgan Chase & Co. added 6 cents in the premarket after leaping 7 percent on Tuesday. Bank of America Corp. shares added 20 cents ahead of the opening after Tuesday's 6.3 percent gain.

Citigroup Inc., which also jumped more than 6 percent Tuesday, fell 4.3 percent in premarket trading after being one of the four major banks that failed the Fed's annual "stress tests."

The bank rally started Tuesday when JPMorgan Chase said it was raising its dividend and launching a $15 billion stock buyback program, all with the blessing of the Fed.

The Fed was planning to wait until Thursday to release the results of its stress tests, which determine which are healthy enough to raise their dividends. After JPMorgan's announcement, the Fed released the results early.

The Fed's action was the latest sign that the U.S. financial system was getting healthier.

"That's what really made the day," said Jeffrey Kleintop, chief market strategist at LPL Financial. Banks were easily the best-performing stocks in the market, gaining almost 4 percent as a group.

The Nasdaq gain was also notable. On Dec. 11, 2000, the last time the Nasdaq closed above 3,000, it was in the middle of a horrifying slide — from a peak above 5,000 in March 2000 to just above 1,100 in October 2002.

At the beginning of 2000, the peak of the dot-com frenzy, investors valued stocks in the Nasdaq composite index at an astronomical 175 times their per-share earnings over the previous year.

Google was not yet a public company, and the iPod didn't exist. Apple pulled in $2.3 billion in quarterly revenue. Many Nasdaq companies were Internet startups with high stock prices but big losses.

And many of them failed, taking the Nasdaq down with them.

Jack Ablin, chief investment officer at Harris Private Bank, said the key difference between the Nasdaq then and now is that the technology companies that dominate the index only promised profits 12 years ago.

"The Nasdaq hasn't done much of anything for 12 years, but it's had a huge rally in earnings," Ablin said.

Today, the profits are real. Apple reported $46 billion in revenue in its latest quarter. The Nasdaq composite, which includes more than 2,500 companies, trades at about 24 times earnings, according to Birinyi Associates.

Meanwhile, the S&P is a 12 percent rally from its record of 1,565.15.

Brian Gendreau, market strategist at Cetera Financial, said stocks could still go higher. Investors are paying roughly 14 times the past year's earnings for the S&P 500 index. The long-term average is closer to 15.

"Valuations are still very cheap," he said.

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AP Business Writer Eileen AJ Connelly contributed to this report.

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