Friday, May 9, 2014
This market has run out of catalysts that can help it break out of
its trading range. The balance of risks will likely remain to the
upside, with the breakdown in the tech, biotech and broader
small-cap space threatening to bleed through to the broad large-cap
indexes which have thus far remained in the positive.
The Q1 earnings season is now effectively behind us, with the
retail sector as the only one with any significant number of
reports still to come. Going by the more than half of the retail
sector reports that we have seen already, the coming reports are
unlikely to move the needle much for the sector or the earnings
season as a whole. Including this morning's
) and last evening's
) earnings reports, we now have Q1 results from 451 S&P 500
There has not been much growth, and estimates for the current
period have been following the same negative trend that we have
been seeing for almost two years now. We will have to wait for the
June quarter earnings season to gain more confidence in the
relatively favorable outlook for the back half of the year and
We don't have much on the economic docket next week, but the April
Retail Sales and Industrial Production numbers coming out will
likely reconfirm the rebound in activity levels in the current
quarter that we have been seeing all recent economic reports. U.S.
GDP growth flat-lined in Q1 in the advance look and subsequent data
appears to push it into negative territory.
But estimates for Q2 show a strong rebound, with consensus
estimates of GDP growth north of +3% at present and some of the
more aggressively 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
Hard to deny the U.S. economy's positive momentum 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 has taken wrong
turns in the past, but stock market investors appreciate that
summarily dismissing its view may not be the smart thing to do.
Stocks need at least a few more months of data to have greater
confidence in its optimistic view.
Director of Research
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