Friday, March 28, 2014
Today's positive pre-open sentiment may not amount to much in the
end. Stocks started out in the green in the last few sessions,
but were unable to sustain the momentum as the sell-off in high
profile tech and biotech stocks kept investors on their toes.
Hard to envision the market resuming a meaningful uptrend without
the participation of these high profile growth stocks.
The market's tentativeness is likely reflective of uncertainty
about the economic outlook. The U.S economy did reasonably well
in the second half of 2013, but lost momentum at the start of
this year. This morning's data about personal income and spending
was no different from tone of other recent reports that show the
economy hitting an air pocket in the first quarter. Investors
have resigned themselves to the weather explanation for the soft
data at the start of the year, but expect to see data showing the
economy springing back into action in the coming days.
Next week is important in this regard as we will get to see
top-tier data for the month of March when weather was less of a
restraint. Tuesday's manufacturing ISM survey and Friday's
non-farm payroll reports will set the tone for the following
The market is looking for evidence that the U.S. economy is on
track to graduate to a higher growth pace this year than has been
the case over the last few years. The first quarter has
essentially been washed out because of weather, but growth is
expected to resume from the second quarter onwards, with
GDP growth going above the +3%-plus pace in the second half and
continuing into 2015.
This favorable economic expectation is at the root of strong
corporate earnings estimates as well. Not much earnings growth is
expected in 2014 Q1, but the market is pricing in a strong
rebound in the second half of the year and beyond. The market is
looking for validation of these expectations and appears to be
getting a bit nervous about it.
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SPDR-SP 500 TR (SPY): ETF Research Reports
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Director of Research