The stock market rally is continuing to push higher, taking
the broader market indexes into record territory. This has put
skeptics like myself on the defensive. But the reality is that we
aren't seeing all-around celebration in the market as used to the
case in the past. After all, we aren't seeing Dow 15000 hats all
around us. That said, main street headlines about such market
milestones will likely prompt more investors to think about
joining the market.
But it's not just about the absence of Dow 15000 hats. There
is plenty of evidence suggesting that investors are hedging their
bets by investing mostly in the market's defensive corners like
consumer staples and utilities. Even though some of the hitherto
laggards like the technology sector appear to be getting a second
look in recent days, overall market leadership still remains with
the defensive sectors. This is also evident from money-flow
trends into the stock market, where hopes of the Great Rotation
into stocks have yet to fully materialize. And money continues to
flow into bond funds.
The U.S. Treasury department just had a 4-week treasury bill
auction at no yield, in other words getting 'free money' from the
market. What all this means is that the market wouldn't be where
it is had it not been for the Fed's policies. Investors are
betting that that as long as those policies remain in place, the
stock market has nowhere to go but up. And recent economic data
has been fragile enough to convince investors that the Fed is
going nowhere any time soon.
Just like economic data, investors are more than willing to
overlook earnings support for the market. The Q1 earnings season
has provided plenty of evidence suggesting that earnings growth
is now firmly in the rearview mirror. Granted Q1 earnings growth
and surprises have not been materially different from what we
have been seeing over the last few quarters, but revenue growth
and surprises are materially weaker.
Total earnings for the 437 companies that have reported
results as of this morning are up +3.7% from the same period last
year, with 66.1% beating earnings expectations. Revenues are down
-0.9%, with only 42.1% of the companies coming ahead of top-line
expectations. The composite growth rate for Q1, where we combine
the results of the 437 companies that have reported results with
the 63 still to come, is for +2.4% growth in earnings on -0.8%
lower revenues. This positive earnings growth rate compares to an
earnings decline expected at the start of the Q1 reporting
are scheduled for release today at 10:00 AM EST and are expected
to increase by 0.4% after decreasing by 0.3% in February.
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