Commentators are merrily chortling about the stock market's fresh all-time highs. But investors probably aren't as excited by the returns they're seeing in their portfolios.
The problem: The generals are leading, but the troops aren't following. The Dow Jones industrials is the leading general market index. Many of the stocks of high-growth, innovative companies that typically make highs during a bull market are quiet.
Over the past year, the Dow has risen 16.1% and the S&P 500 is up 16.4%. The IBD 50, a computer-generated list of top growth companies, is up 4.3%.
Year to date, the Dow is up 13.4%, the S&P 11.7% while the IBD 50 climbed 11.4%.
This isn't a normal bull market.
Thursday's action gave us more of the same. The Dow rose 63 points, or 0.4%. The growth-oriented Nasdaq was up 2.9 points or less than 0.1%.
"More defensive, dividend-bearing names are doing best. Anything with a yield is attracting money," said Kier McDonough, a Boston-based portfolio manager at Brigos Capital Management. "People are concerned about safety. They've got to put their money somewhere.
Economist Ed Yardeni agrees.
"I see the fingerprints of Europeans all over this rally," he told IBD. "Italians couldn't form a government and Cypress had its problems. Europeans are looking for a safe haven for their money. They tend to buy the dividend-yielding, blue chip names they are familiar with.
The Dow's dividend yield is 2.4%. That's low by historical standards, but it's better than money market rates that are next to nothing.
The fundamentals of the 30 stocks making up the most-watched U.S. index are tepid.
Growth has been decelerating dramatically over the past year, reflecting the slow growth in the economy. Revenue growth for the most recently reported quarter for Dow stocks is up an average of only 1.7%. Earnings grew at a 1% rate.
Estimates for the coming quarter are better. But if you discard two turnarounds seen by analysts, Bank of America (BAC) and Alcoa (AA), the average earnings gain of a Dow stock is estimated at 2.6%. The earnings estimate for the year is up 6.3%.
Earnings Barely Growing
The situation isn't much better looking at the broader S&P 500. Earnings for the first quarter of 2011 were 18.9% above the year-earlier period. In Q1 2012, earnings were 8.1% better. For Q1 this year, analysts tracked by Thomson Reuters are looking for a 1% increase, a number that usually increases as earnings season progresses.
Though not as extreme, this year is shaping up as the opposite of the bull market year of 1999. Then, any stock with the slightest whiff of growth skyrocketed. Growth fund managers outperformed shell-shocked value managers. Over the past year, value funds have outperformed growth funds 21.6% vs. 14.7%, according to Morningstar.
Most analysts believe the stock market is rising because of near-zero interest rates and the Federal Reserve's quantitative easing program.
Still, the market is going higher, pulling some stocks with it.
"There's an old saying on Wall Street: Don't fight the Fed," McDonough said. "I see the economy chugging along, we're currently in an uptrend and one should be positioned accordingly."