Friday, May 10, 2013
Pre-market sentiment is pointing towards a positive start to today’s market action, at least on the open. But stocks may struggle to sustain the momentum throughout today’s session given the lack of any economic or earnings news. That said, the market’s push into record territory has not exactly been driven by any specific data.
We could actually say with a lot of confidence that the market’s gravity-defying performance has come through in spite of economic and earnings data and not because of it. The Fed is the key driver of the outsized market gains. But to be fair to the Fed, they are not alone doing this – we effectively have a global central bank cartel comprised of the Bank of Japan (BoJ), the European Central Bank, Bank of England and others.
The BoJ has come late to this central bank party, but they are the most aggressive of all the central banks. The resultant drop in the Japanese Yen and momentum in Japanese stocks are in a league of their own. The bottom line is that investors remain confident that as long as the Fed and other global central banks keep the money spigots open, they don’t need to worry too much about economic and earnings data.
Next week’s data docket includes the April Retail Sales report and a host of inflation and housing reports. We will also get the Philly Fed and Empire State regional manufacturing surveys. Hard to envision any of these reports getting the market off its positive trend-line, but Monday’s Retail Sales report could be the most significant.
Earlier fears of the payroll tax changes and the budget sequester have not shown up in consumption numbers as yet, but that doesn’t mean they wouldn’t have any effect at all. Manufacturing has lost some of its oomph lately as well and next week’s data will shed some more light on developments in that key area.
The earnings season is effectively over, with more than 90% of the market cap of the S&P 500 already out with Q1 results. Earnings growth has turned out to be better relative to pre-season expectations, but there is no revenue growth and the majority of companies came short of top-line expectations.
Expectations for Q2 have come down, largely reflecting the overall negative tone of management guidance, but estimates for the back half of 2013 and full year 2014 have held up quite good. Given what we have seen in Q1 and the last few quarters, it is hard to have any confidence in those expectations.
But investors don’t seem to losing any sleep over it. Investors seem to believe that as long as the Fed remains on its easy-money policy track, they don’t need to worry much about pesky issues like economic and earnings data.
Director of Research