Pre-open sentiment indicates a positive open for the market
today, building on the favorable overnight market activity out of
Asia and Europe. But the day's trading action will likely be no
different from the trend that has been in place in recent weeks -
stability and largely positive movement in the large-cap indexes
and continued loss of ground in the small-cap space.
We are in a seasonally weak period, with not much in terms of
catalysts that can push us out of the recent trading pattern. The
Q1 earnings season has come to an end for 10 of the 16 Zacks
sectors, with the retail sector as the only one with any meaningful
number of reports still to come. The best-case scenario for the
retail sector earnings is that they are no different from what we
saw from other sectors. Recent estimate revisions trend for major
) and others reporting in the coming days is pointing towards
downside risks to current expectations. Meaning that the sector's
Q1 results could actually be weaker than what we saw from other
On the economic docket, the April Retail Sales and Industrial
Production numbers coming out this week will likely reconfirm that
the U.S. economy starting thawing in April - a trend that we have
been seeing in recent economic data. The U.S. economy flat-lined in
Q1, but estimates for Q2 show a strong rebound, with consensus
estimates of GDP growth north of +3% and some of the more
optimistic forecasts as high as +5%. The outlook for the second
half of the year and beyond reflects comparable optimism, with U.S.
economy expected to finally 'graduate' to an above-trend growth.
Economic growth has no doubt improved in the current period, but
not everyone is buying into the supposedly favorable outlook for
the second half and beyond. That's the way how most people will
interpret the bond market's reaction to recent positive economic
data. The bond market isn't infallible and could very well be
misreading the current situation. But it will take at least a few
more months of positive economic data to disprove its skepticism
The Dow Jones Industrial Average finished at record level on Friday
and the S&P 500 isn't that far behind either. But the situation
is different at Nasdaq where many of the high-flying momentum
stocks live and in the broader small-cap space. Hard to tell at
this stage whether the sell-off will remain restricted to the
momentum and growth stocks space or will eventually bleed into the
broader market indexes. But the trend doesn't appear to have played
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