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Analyst Blog

Tuesday, November 19, 2013

Stocks briefly touched milestone levels on Monday, but couldn’t hold onto the gains. Pre-market sentiment is indicating a modestly lower open for the indexes, though strong results from Dow component Home Depot (HD - Analyst Report) will likely give that index some lift. While overall momentum in the market still remains to the upside, it is reasonable to expect near-term tentativeness given the absence of any major catalysts in the coming days.

There is little doubt that the major stock market indexes will reach the milestone levels in the next few days, but their ability to build on those level will be a function of developments on the Fed front. Even the OECD cited uncertainty about Fed policy as one of the risk factors to the global economic outlook as it lowered its global GDP growth projection. The U.S. economy has been doing much better relative to other developed economies, but the Fed’s inability to wean the markets off of artificial liquidity injections is only delaying the day of reckoning for the global economy.

The U.S. economy will for the most part do just fine in a post-QE world, though some rate sensitive sectors will likely feel new pressures. But the end of QE will most certainly be immensely destabilizing for the emerging economies given its impact on capital flows into those markets. With a number of key emerging market economies like India, Brazil, Turkey and others already undergoing growth deceleration, the prospect of less or no QE on the horizon is materially unhelpful, to say the least.

In corporate news, Home Depot’s blowout numbers today reconfirm that the big-box retailer continues to be a big beneficiary of the home improvement cycle. Best Buy (BBY - Analyst Report) came out with better than expected results for the October quarter, but the company warned about its margin outlook in the current period given the highly promotional environment this holiday season. Campbell Soup (CPB - Analyst Report) missed expectations and guided lower.

Sheraz Mian
Director of Research

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