Wednesday, August 8, 2012
It will be reasonable to expect the market to take a breather
today after three days of gains that has pushed it to within
striking distance of the year's high reached in the Spring. The
gains are hard to justify given the absence of any accompanying
corporate or economic news, though we did see some sign of life in
the labor market last Friday after months of disappointments. This
morning's favorable productivity and unit labor cost data for the
second quarter also appears to confirm some positive movement on
that front.
But the market seems to be betting that the Fed will come through
with its magic wand despite these signs of life in the labor
market. Nobody is ready to be on the wrong side of the hoped-for
Fed action. We may see some early indications of the Fed's thinking
from the central bank's annual Jackson Hole huddle later this
month. Optimism has been steadily improving on the European issue
as well, though the overall run of recent economic readings from
that region are painting a fairly dismal picture. This morning's
growth downgrade from the Bank of England is another sign that the
Euro-zone fiscal woes are taking a heavy toll on economic
activities.
In earnings update, we have solid earnings reports from
Dean Foods
(
DF
) and
Macy's (
M
) this morning, while
Disney's
(
DIS
) results after the close on Tuesday mirrored what we have
repeatedly seen this reporting season - an earnings beat, but a
revenue miss. As of this morning, 65.3% of the 435 S&P 500
companies that have reported results have come ahead of earnings
expectations, with a median surprise of 2.7%. Roughly the same
proportion of companies (66.4%) came out with positive earnings
surprises in the first quarter, but the median surprise was at
3.6%. What is materially weaker this time around relative to other
recent quarters is performance on the revenue side, with 61.9% of
the companies coming short of revenue expectations.
It is hard to envision the market continuing to make gains in
the absence of fundamentals support - something has to give. The
market has been defying problematic signs in recent day. But the
party eventually comes to an end - always does.
Sheraz Mian
Director of Research
DEAN FOODS CO (DF): Free Stock Analysis Report
DISNEY WALT (DIS): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
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