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Market off to a flying start

In what will be a shortened week with Good Friday reducing the market to just four trading days, the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) wasted no time in gaining half of one percent on Monday.

Stocks having a particularly good day included Leighton Holdings (ASX: LEI) up 4.3%, recouping some ground after the turmoil of last week when three members of the board resigned. Macquarie Group (ASX: MQG) also had a good day, up 2.2%, helped along by news that it may offload its shareholding in OzForex for a substantial profit

The financial sector had a good day, with the stand outs being the second-tier banks  which outperformed the market. Bank of Queensland (ASX: BOQ) and Bendigo and Adelaide Bank (ASX: BEN) both rose over 2%. Given the Big 4 banks, for the most part have outperformed the second-tier banks over the last year, it appears investors are trying to squeeze a little more upside out of these relatively less-expensive smaller bank stocks.

Earnings growth needed

For investors paying above average market multiples for stocks, they need to be confident that earnings growth is going to eventuate. If it doesn’t, then expect multiples to likely contract. While history may not always repeat, investors with a good understanding of the past are better equipped for the future.

Foolish takeaway

As the market continues to trend upwards it would be Foolish to not consider the multiple expansions that have occurred. Many stocks are looking fully priced and therefore may not provide particularly attractive returns if purchased at this point. There are however still opportunities for enterprising investors.

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More reading

The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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