With the Q1 earnings season now largely behind us and not much
on the economic calendar either, stocks may struggle to sustain the
momentum from last week in the absence of a catalyst. We should
keep in mind however that the market's push into record territory
has not been driven by economic or earnings data.
In fact, one could say with reasonable confidence that stocks
reached the current record levels in spite of economic and earnings
data and not because of it. It's the Fed that is the key driver of
the outsized market gains. The Fed is not alone; other key central
banks like the Bank of Japan and the European Central Bank are
equal partners in this global central bank cartel. Investors remain
confident that as long as the Fed and other global central banks
keep the money spigots open, they don't need to worry too much
about economic and earnings data.
Yes, the April jobs report came in better than expected and
added that extra bounce to the market on Friday. But one could
reasonable envision the market making gains on Friday even if the
jobs report had come otherwise. That's exactly what the market had
been doing for weeks despite sub-par economic and earnings data.
The jobs report runs counter to every other piece of economic data
in recent weeks.
No reason to doubt the April jobs data as such, but all that the
report tells us is that the U.S. economy may have more resilience
this year than was the case in the recent past, which should help
it withstand the fiscal tightening in relatively better shape. From
the market's perspective, the key take-away from the jobs report is
that the growth momentum is fragile enough to keep the Fed on its
On the earnings front, including this morning's Tyson
Foods ( TSN
) earnings report, we now have Q1 earnings reports from 407 S&P
500 companies that combined account for 86% of the index's total
market capitalization. Total earnings for these 407 companies are
up +3.7% from the same period last year, with 67.3% beating
earnings expectations. Revenues are down -1%, with only 42% of the
companies coming ahead of top-line expectations. The median
surprise is +3.4% on the earnings side and negative -0.4% on the
revenue side thus far. The earnings growth rate is better than what
this same group of companies achieved in 2012 Q4, but comparable to
the 4-quarter average, though the revenue performance is decidedly
on the weak side.
The composite growth rate for Q1, where we combine the results
of the 407 companies that have reported results with the 93 still
to come, is for +2.4% growth in earnings on -0.7% lower revenues.
This earnings performance would normally be inconsistent with a
stock market in record territory. This is better performance than
pre-season expectations, but hardly consistent with a market in
record territory.To read this article on Zacks.com click here.Zacks Investment