Will strong earnings prevent a replay of last Summer’s selloff?
Strong corporate earnings caused stocks to rally last week for the first time this month. The S&P closed up 0.6% for the week, while the Dow closed 1.4% higher, and the Nasdaq trimmed 0.36%. With no domestic economic reports released on Friday, traders turned their attention back to lingering concerns over Europe and China, and markets lost some momentum in afternoon trading. Even so, last week’s positive earnings reports are alleviating concerns about the economy and making investors feel more confident about the rallies we’ve seen this year. With 23% of S&P 500 companies having reported results so far, more than four out of five have beaten expectations by an average of 8.8%. Profit growth in this quarter has also been up 6.2%, according to Thomson Reuters Proprietary Research.
While some analysts are concerned that stocks are poised to repeat their 2010 and 2011 performance – when a mid-year retreat followed an April peak – there are many differences between the economy of the past two years and today. The 2010 and 2011 pullbacks largely occurred because of recession fears and shocks created by the Japanese Tsunami, but the U.S. economy is on more solid footing than at any other time in the recovery. Current indicators point to slow and steady economic growth, and we have already moved away from index highs. If we continue to see positive earnings among the nearly 180 S&P 500 components reporting next week, we may see markets sustain their upward trajectory.
Investors will also be closely watching Tuesday’s meeting of the Federal Reserve FOMC. With an optimistic economic outlook and improving jobs situation, it is unlikely that the Fed will conduct another round of bond purchases. Even so, we will be monitoring the Fed’s statement on Wednesday, and will be certain to fill you in on any outstanding developments. We hope you have a great week!
ECONOMIC CALENDAR:
Tuesday: S&P Case-Shiller HPI, New Home Sales, Consumer Confidence
Wednesday: Durable Goods Orders, EIA Petroleum Status Report, 5-Yr Note Auction, FOMC Meeting Announcement, FOMC Forecasts, Chairman Press Conference
Thursday: Jobless Claims, Pending Home Sales Index
Friday: GDP, Employment Cost Index, Consumer Sentiment
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.
HEADLINES:
Spain’s bond auction sees strong demand from investors. Spain’s central bank sold all the 2.54bn euros of bonds it was offering, with demand higher than expected. These eased global worries about Europe’s lingering debt problems and shows that investors are eager to snap up bargain-basement debt.
Fewer U.S. states reported job gains in March, indicating a slowing of job growth nationwide. According to Labor Department figures, 29 states reported job gains last month while 20 states lost jobs. In more positive news, the unemployment rate fell in most states.
Sales of previously-owned houses dropped in March, despite low mortgage rates. According to National Association of Realtors figures, home sales fell last month by 2.6%. Seasonal factors might be behind the disappointing figures: the first months of 2012 were the strongest in five years, indicating that a mild winter may have encouraged buyers to close earlier, stealing sales from March.
High energy prices may be slowing rural economic growth. According to the Rural Mainstreet survey, higher energy and fuel costs are slowing growth in 10 Midwest and Plains areas dependent on agriculture. Slowing global demand for key crops may also be having an effect on growth.
QUOTE OF THE WEEK:
Abundance is not something we acquire. It is something we tune into Dr. Wayne Dyer
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