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
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
In earnings update, we have solid earnings reports from
) this morning, while
) 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.
are scheduled to be released today at 10:30 AM EST. For the week
ending July 27, crude inventories decreased by 6.5 million barrels
from the previous week to 373.6 million barrels.
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