Non-Stop: S&P 500 Finishes February at Record High

In Non-Stop, Liam Neeson plays an air marshal who must stop a string of murders on a plane–when everyone thinks he’s the one doing the killing. Reviews have been mixed–the thriller has a 57% rating on Rotten Tomatoes–but the film is set to earn some $25 million in its first weekend of release in the U.S. and continue Neeson’s string of successes–some big, some small. Taken 2, for instance, raked in $376 million at the global box office, while the Grey pulled in just $77.3 million but cost only $25 million to make.

Myles Aronowitz

The stock market has that non-stop feeling going for it as well. Sure 2013 was a blockbuster by any standards, but even 2014 is looking OK following some early volatility. The S&P 500 gained 4.3% to 1,859.45 in February, closing the month at a record high. That 4.3% gain was the best February performance since 1998. The Dow Jones Industrial Average gained rose 4% to 16,321.71 in February, but still finds itself down 1.5% on the year.

The Dow got a boost from Walt Disney (DIS), which rode the success of Frozen to an 11% February gain, while E. I. du Pont de Nemours (DD), rose 9.2%, while Merck (MRK) advanced 7.6%, Nike (NKE) gained 7.5% and American Express advanced (AXP) 7.4%, as investors bet on its ability to tap small-businesses.

What explains the stellar February run? How about the weather? It’s allowed investors to look past bad economic news, and even give a pass to some companies. It also helps that Janet Yellen has left enough wiggle room in her commentary to let investors imagine that continued tapering is not a given.

Deutsche Bank’s David Bianco and team consider just how expensive the S&P 500 has become:

At 1850, the S&P 500 is trading at 16.9x trailing and 15.6x forward EPS; the trailing PE is 1 point higher than its average since 1960 and the forward PE is 1.5 points higher. Current PEs are full but fair. Further PE expansion requires that long-term real interest rates climb but plateau below history's average (still uncertain).

JPMorgan’s Thomas Lee suggests that the individual investor have returned to the market–and could give it a boost. He explains:

Skeptics have argued to us that individual investors, who have pulled more than $345b from equities since 2007, are not likely to return to markets for years, maybe decades. We disagree—investors are likely to move into assets that generate strong returns…E*TRADE (ETFC) provided some evidence that this is already under way…DARTs (daily average revenue trades) rose in 2013 to 151k, after declining steadily since 2009. In fact, the company noted that in January DARTs rose to 196k, the highest since well prior to 2009. This reengagement by individual investors, we believe, is a positive and is naturally supportive of improving valuations and liquidity for stocks.

Non-stop, indeed.