Is anyone shocked that the market opened strongly in the green today? All it took was the expected news that the ECB will cut rates, or, maybe, the weekly unemployment applications report jump-started the market.
- The number of Americans seeking unemployment aid fell last week to seasonally adjusted 324,000, the lowest since January 2008. The four-week average, a less volatile measure, plummeted 16,000 to 342,250, close to a five-year low.
Perhaps neither really had much impact on market sentiment. Perhaps, the market is looking deeply into the earnings coming out and seeing that despite all the naysaying, earnings are not bad, after all.
- Record quarterly earnings. That’s right. Record. First-quarter earnings for the S&P 500 currently stand at $26.44, according to S&P Capital IQ, the highest ever for a single quarter, beating the prior record of $26.36 for the fourth quarter of 2012.
My oh my, how can that be? Just three weeks ago, everyone and their pundit sister, along with an analyst uncle or two, were telling the market to brace for sub-par earnings reports. Now, it might not end up as a record, but, as of this moment, it sure looks as if the earnings will not be a bust.
Then again, maybe all three combined help fuel the market’s vision of what the world will look like 6-9 months from now. I say help because there are other energizers that contribute to the market wanting to go up. For example …
- Positive macro news and the health of the U.S. consumer pushed credit card ABS (asset-backed security) performance to levels not seen in more than two decades. Prime 60+day delinquencies again touched record lows while retail late-pays approached record lows.
US unemployment is high, US manufacturing is weak, US corporate revenues are light, China is economically tepid, and Europe is a fiscal and economic basket case, so why would the market consider all of this other non-headline data? Because that is what the market does. Headline news has an impact, certainly, but it is short term. Ultimately, the market actually delves deep into the data, and, more importantly, into the actual context of what is happening in the world.
- Europe is expected to accelerate a shift away from its austerity-first agenda this week as the new Italian government changes course and a German-Spanish investment pact underscores a renewed focus on combating record unemployment. This comes on the background of much criticized statements from European Commission president Jose Barroso who said ‘austerity was over’.
The above has more impact on the future of the market than a now four-year-old spring-time economic turn to the downside where the global PMI and ISM data comes in slightly weaker than it has been. No, the now long-term downward trend in unemployment applications, earnings reports showing strength in US corporations, strong auto and housing sales, increased lending to small businesses, and a healthy consumer not convinced the economy is all that bad are bigger drivers of longer-term market momentum. Today’s look at the market now brings me to a question from a reader …
- Your market commentary is always so broad I find it pretty useless for my purposes. Why don’t you give your readers specific trades or ideas to consider?
I’ll be the first to admit that I paint my market view with a broad stroke, but the truth is, that is all I need to stay on top of the market, and, in my opinion, that is all anyone needs to stay on top of the market. Sometimes, too much detail obscures the reality, ya know, the standard “You can’t see the forest for the trees” thing.
In the daily flow of “news” and market commentary from the “experts” espousing their notions of where the market is going, the bigger picture is often ignored. This myopia generates short-term market movement, but, in the end, the market will force its way in the right direction based on the fundamentals.
As to giving readers specific trades or ideas, well, I do that occasionally, but not often. More often, I will suggest areas to look for opportunity and I will say why, but my job is to educate and motivate market players, not to tell them what to buy and when. This, then, is why I paint my view with a broad stroke, and, in the process, continually discourage folks from buying into the self-perpetuating industry that brings us the daily flow of market analysis, of which I am a part, but … well, I mean … don’t not read me … I mean, my commentary is, well, different.
- Challenger, Gray and Christmas reported that planned job cuts totaled 38,100 in the month of April. This was down from March’s level and down 6% from year-ago levels.
Add the above to the longer-term market mindset.
Trade in the day; Invest in your life …
