Our favorite chart, updated through the futures for 25 February 2013:
Where Did the More Room to Run in the Near Term Come From?
The actions last week by Wellpoint (NYSE: WLP), Halliburton (NYSE: HAL) and Coca-Cola (NYSE: KO) to boost their dividends, which offset earlier moves in February by Diamond Offshore Drilling (NYSE: DO), Cliffs Natural Resources (NYSE: CLF), Exelon (NYSE: EXC), and CenturyLink (NYSE: CTL) to cut their dividends. The net increase in dividends expected for 2013-Q2, where investors are currently focusing their attention, provides a little more room for the rally to run, as the change in the growth rate of stock prices will continue to move upward to converge with the change in the growth rate of dividends per share expected in 2012-Q3.
By the way, it's really unusual to have more than three S&P 500 companies act to cut their dividends in a single month outside a period of recession.
What Does "After That" Mean?
Hypothetically, what would it mean if investors were to suddenly change their focus from 2013-Q2 to 2013-Q3? Or to some other more distant quarter in the future?
Well, in terms of today's stock market, that would mean shaving about 30% from today's stock prices. But then, there is no guarantee that investors will focus on 2013-Q3. They could choose to focus on 2013-Q4 which is considerably worse. Or they could opt to focus on 2014-Q1, which initially looks to be similar to 2013-Q2, but about which we'll know more in a about a month.
That, by the way, would be the best case scenario for stock prices in 2013 provided that wild card factors like a really amped up quantitative easing program by the Federal Reserve don't inject a lot of noise into the market.
The latest that investors might shift their forward-looking focus away from 2013-Q2 will be 21 June 2013, but they will become increasingly likely to shift their focus to a more distant future quarter after 15 March 2013, when the futures contracts for the S&P 500's dividends in the first quarter of 2013 expires.
Update 25 February 2013: See if you can tell what time the U.S. stock market got the news that the polls had closed in Italy without a clear outcome today, along with all that means for uncertainty in Europe's markets:
Now, that's what we would describe as a classic noise event! It's up to you to decide if that's a calamity or an opportunity!
Update 28 February 2013: And then, as quickly as the Italian election noise event began, it ended:
All noise-driven events end. It's only ever a question of when.
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Closing values for previous trading day.
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