Today's market action will likely see a reversal of Monday's
modest pullback that had some people start thinking of the
long-awaited 'correction'. Monday's action was likely nothing
more than the market's typical tentativeness ahead of key
economic data - with Friday's March jobs report being the key
data point this week.
The market's impressive run from the November lows has
remained in place despite doubts from many, myself included. And
this will likely continue till uncertainty increases on two
related fronts - the economy and earnings.
Monday's underwhelming manufacturing ISM report
notwithstanding, recent economic data has been positive for the
most part. The sum total of these reassuring economic readings
has helped raise expectations for the current and coming
As a result, GDP growth expectations for the first quarter are
almost double what they were at the start of the period. This
growth momentum is expected to accelerate further in the second
half and carry into 2014. But our history of the last three years
shows a pronounced seasonal tendency for the economy to lose
steam in the Spring/Summer months. There is no evidence of such a
Spring Swoon at this stage, but there is no shortage of potential
catalysts that could trigger such weakness.
Related to the economic question is the outlook for corporate
earnings. We haven't had much earnings growth lately. In fact,
earnings have been essentially flat in the second half of 2012.
This flat (or non-existent) earnings growth trend is expected to
persist through the first half of 2013 and then shift gears in
the back half to a double-digit growth pace. The acceleration
carries into 2014, giving us another double-digit growth rate
that year. We will test these expectations as the first quarter
earnings season gets going from next week onwards. The initial
reports from companies like
) have been less than inspiring. But we will have to wait and see
if current expectations for the coming quarters, particularly the
second half of the year, will hold up.
Many factors could come in the way of this market rally - from
changing expectations about the Fed's QE program to other 'known
unknowns'. But it's hard to envision the prevailing optimism
remaining in place in the absence of current economic and
for January are scheduled for release today at 10:00 AM EST and
are expected to increase by 2.2% following the January decrease
of 2.0% to $472.9 billion.
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