What
impact will corporate earnings have on the markets?
Markets
turned out another solid performance last week as all three major indices
reached new highs. With minimal economic data for investors to chew on,
earnings drove most of the market action last week. On Tuesday, the S&P 500
set a new high while the Dow notched its first close above the 15,000 mark.
Industrials, technology, and consumer discretionary stocks led the gains while
utilities and consumer staples dropped. For the week, the S&P 500 added
1.19%, the Dow gained 0.97%, and the Nasdaq increased 1.72%.[1]
As
we near the end of earnings season, 90% of S&P 500 companies have reported
in, with 67% beating earnings expectations. If all remaining companies post
numbers in line with estimates, earnings will be up 5.3% over the first quarter
of 2012. However, most companies are still missing their revenue estimates,
with only 46% beating their own revenue projections. Next week, a handful of
major retailers are due to report, which, along with Monday’s retail sales
report, will give sector analysts a lot to think about.[2]
After
markets closed for the weekend, Federal Reserve officials announced their
strategy for unwinding QE3, their unprecedented $85 billion per month
bond-buying program. While they didn’t confirm the timing of intended moves,
officials said they plan to reduce bond purchases in careful, measured steps as
they monitor the job market and inflation. Because it doesn’t look like the Fed
intended this announcement to mark the end of quantitative easing, it appears
they meant to signal their flexibility in managing the programs in the months
ahead.[3]
Looking
ahead, the bulls could keep running next week as long as economic reports on
labor, retail sales, industrial production, and manufacturing don’t disappoint.
However, with equities reaching new highs, there are plenty of opportunities
for weakness to end the run. If investors think that markets are overbought,
some consolidation might occur. The market activity thus far suggests that
investors are betting on increasing economic growth, and the Fed’s announcement
seems to indicate that officials aren’t too worried about the U.S.
ECONOMIC CALENDAR:
Tuesday: Import and Export Prices
Wednesday: Producer Price Index, Empire State
Thursday: Consumer Price Index, Housing Starts,
Jobless Claims, Philadelphia
Friday: Consumer Sentiment
HEADLINES:
Late mortgage repayments drop in Q1. A strengthening housing sector,
rising home prices, and steady gains in the jobs market are helping U.S.
April U.S. budget surplus largest in five years. Increased tax revenues and an
improving economy allowed the federal government to post a monthly surplus of
$113 billion. In comparison, the surplus in April 2012 was $59 billion.[6]
There is usually a surplus in April because the government receives an inflow
of tax payments. But tax receipts this April are 28% higher than last year, and
the surplus is nearly twice as high.[7]
High U.S.
QUOTE OF THE WEEK:
“Try
not to become a man of success but a man of value.” – Albert Einstein
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