Back to top

Momentum to Carry Through?

Read MoreHide Full Article
Wednesday, April 2, 2014

If stocks were able to reach a new all-time high without any obvious catalyst on Tuesday, then today’s positive-looking ADP (ADP - Free Report) report should be enough to carry the momentum in today’s session. The government jobs tally on Friday and start of the Q1 earning season next week are the next data points for the market.

The ADP jobs tally came a tad below estimates, but nevertheless confirmed expectations that the U.S. economy is slowly gaining pace as the Winter restraints move away. Other economic data -- like Tuesday’s ISM survey and motor vehicle sales -- are showing the same trend.

If this report is a true reflection of underlying trends in the labor market, then Friday’s government jobs report will likely be a smidge below current expectations of around 200K as well. The takeaway from all this is that economic growth suffered in the first quarter due to bad weather, but should start improving in the coming months.

The market is looking for a material ramp-up in GDP growth from the second quarter onwards, with GDP growth going above the +3%-plus pace in the second half and continuing into 2015. This economic outlook is at the root of strong corporate earnings estimates as well.

Not much earnings growth is expected in 2014 Q1, but the market is pricing in a strong rebound in the second half of the year and beyond. Data along the lines of today’s ADP and Tuesday’s ISM are keeping these hopes alive.

Sheraz Mian

Director of Research

More from Zacks Ahead of Wall Street

You May Like