Every week these days seems like a big week for the market, but this week coming up is a big week for the market. One of the bigger things is the news that the IMF has secured some $430 billion in pledges from countries around the world. This effectively doubles the backstop currently in place for the financial issues in the Eurozone. On top of this, China announced that it too will contribute to the fund, as it has an abiding interest in seeing Europe fiscally healthy again. Along with the ECB’s commitment to backstopping the problems and the other funds set up to do the same (the European Financial Stability Facility (EFSF) and the permanent European Stability Mechanism (ESM)), investors should feel more solid about investing in Italian and Spanish bonds. The key word is “should.”
As well this week, some 170-plus companies are set to report earnings, among them the big enchilada – Apple. Apple’s report will affect the technology sector and the NASDAQ one way or the other, as it is so heavily weighted.
One potential market mover is the first round of voting for the next President of France that happened on Sunday. As the polls opened, Nicolas Sarkozy was trailing the socialist candidate Fran?ois Hollande. The big money players tend to favor the conservative Sarkozy, and if it looks as if he might lose in the second round, they might see this as a blow to the progress of solving the European debt issues.
We also have the FOMC meeting, the ICSC-Goldman Store Sales report, the Consumer Confidence report, the S&P Case-Shiller Home Price Index report, the FHFA Home Price Index report, New Home Sales, the Richmond Fed Survey, the Durable Goods report, the FOMC Policy Statement/Economic Projections, Chicago Fed National Activity Index report, and Fed Chairman Bernanke’s Press Conference. How about some more? Later in the week, we will get the weekly Jobless Claims report, the Pending Home Sales report, the Kansas City Fed Survey, and the one of the biggies, the Q1 GDP announcement. Oh yes, almost forgot the final Consumer Sentiment report. The above is quite a mouthful, and I suspect the market will have some difficulty swallowing it all in just seven days. It may be that the first few bites set the tone, and the bites in the middle alter the tone up or down. That would be the words of the Bernank himself on Wednesday. My bottom line? Expect more erratic behavior from the market.
Now, onto one of my favorite targets – those who predict the future with surety. Many analysts predicted this earnings season would be a bust, that companies could not sustain the positive momentum that we have seen for that last three years. Once again, my advice to those who want it – take what the analysts say with a huge grain of salt. Listen to them, understand where they are coming from, and then make up your mind based on what you know.
Quarterly earnings this round have been surprisingly strong. Of the 121 companies in the S&P 500 that have reported, more than 80% have beat expectations, according to Thomson Reuters. During a typical quarter, only about 60% of companies beat estimates.
Now, I will be the first to admit that 1/4 of the total earnings reports do not tell the whole story, but the huge “beat” so far is a portent, a trend perhaps, and with the 20% cushion established, things could get pretty hot indeed. Yes, this week promises to be packed with energy, for sure.
Trade in the day – Invest in your life …
