Monday, April 4, 2016
Stocks have done really well lately, with the major indexes at their highs for the year on the back of improving sentiment for the U.S. economy and hopes of continuing Fed support. Pre-open sentiment indicates that the trend will continue in today's session.
The economic picture has lately been showing signs of improvement, with last week's jobs and factory sector readings confirming that the economy was starting to shake off the restraints from seasonal factors. This is likely enough to take the GDP growth pace back to the all-too-familiar muddle-through growth of about +2% going forward, but wouldn't give us much more.
Investors' concerns about the health of the global economy, a big reason for continued issues in the U.S. factory sector, are still with us. These international factors are apparently behind the Fed's renewed dovishness, as the Chairwoman's multiple references to global risk factors in last week's statement shows.
Minutes of the last FOMC meeting coming out Wednesday afternoon will likely give us more color on the central bank's thinking. But the market's evolving Fed view appears to be that the central bank will make only one more rate hike this year.
My thinking is that if the economy continues to improve along the lines of recent readings, then we will have a rate hike in the June FOMC meeting. And if the growth momentum continues, then the Fed will likely consider another hike towards the end of the year after the electoral event.
In corporate news, we have a major M&A deal in the airline space, with Alaska Air ( ALK ) coming out ahead of JetBlue ( JBLU ) in acquiring Virgin America ( VA ). Alaska Air appears to have outbid JetBlue by paying a bigger premium on the back of its stronger financial health.
In other news, Tesla's ( TSLA ) Model 3 continues to generate a lot of buzz, with orders for the new model hitting 276K over the weekend. Elon Musk indicated over the weekend that if the trend continues, the orders will hit 500K level. The strong demand for the new model, which is expected to come out in late 2017, will test Tesla's operational abilities.
Director of Research
Note: In addition to this daily pre-open article about the market, economy, and the corporate earnings picture, Sheraz Mian also provides detailed earnings analysis in his weekly Earnings Trends report. If you want an email notification each time Sheraz Mian publishes a new article, please click here .