Everyday, Everyday I Have the Blues
By John Stoltzfus,
Chief Investment Strategist
Trend Analysis
Market Strategy Radar Screen Weekly May 08, 2017
In this article:
- Markets could rally further near term or just as easily see investors take some profits while they pause and ponder what catalyst might drive the market higher or lower.
The Beat Goes On
Markets breathe a sigh of relief on French election and as economic data firm worldwide
Election results in France on Sunday served to remove another cloud of worry that had hung over the European Union, the EMU and the global markets for some time. With the victory of the French center-right’s pro-business and pro-EMU candidate Emmanuel Macron over the National Front’s Marine Le Pen, voters in France expressed their desire for a change politically but not to any extreme.
Worries of the potential for a populist victory were pretty much dispelled two weeks ago in the first part of France’s Presidential election that indicated that Emmanuel Macron would be the likely victor in the runoff. That said, all too fresh were memories tied to surprise results when voters chose in favor of Brexit last June and the stateside Presidential election outcome last November.
With the European region broadly showing signs of improving economic conditions and earnings growth and with the elections in the Netherlands and France resolved and in the rearview mirror, stocks in Europe could get bid higher.
As we went to press on Sunday futures markets were pointing to higher prices from Asia to Europe to the US as markets open around the globe on Monday.
Stateside the S&P 500 reached another high last week closing at 2,399.29 last Friday though it wasn’t received with much fanfare. Q1 earnings season so far has delivered good results that have broadly surprised to the upside. With 411 of the benchmark’s current 498 companies thus far having reported results, earnings are up 15.3% on the back of 8.63% revenue growth.
The energy sector has seen earnings turn dramatically positive in the first quarter, rebounding from a string of prior quarterly declines in earnings tied to the dramatic drop in oil from its last peak of $107 bbl. in June of 2014.
The financials sector along with information technology and the Materials sector thus far show double digit growth this earnings season. For details on sector earnings see page 4 of this report.
The week just ended provided numerous “hurdle clearing” moments including: a reiteration of monetary policy by the Fed at its FOMC meeting; a better than expected non-farm payroll number (211,000 jobs added in April); headline unemployment at 4.4% (the lowest since pre-crisis in May of 2007); the postponement of a government shutdown stateside (as Congressional leaders reached a bipartisan agreement to fund the government through September). This weekend added the positive results of the French run-off election.
Markets could rally further near term or just as easily see investors take some profits while they pause and ponder what catalyst might drive the market higher or lower.
With so much good news crossing the tape many investors have been concerned about valuations as the S&P 500 and the NASDAQ both reached new record highs on Friday. A wait and see, or an “I’m from Missouri—show me” attitude could develop until earnings show continued improvement in next quarter’s reporting season.
Last week’s economic data while positive on the jobs front was less robust in manufacturing— particularly autos as well as in terms of wage growth.
From our perspective on the radar screen prospects look good for the economy to continue growing modestly (at an annual rate of 2% to 2.5%) and the equity market looks poised to grind higher.
Stateside interest rates remain low but not low enough to worry the Fed about the economy. Oil prices have gotten cheaper due to production and supply even as demand improves with economic growth.
The world economy is showing signs of a recovery and international markets are rebounding. In our opinion things are getting better rather than worse stateside, in Europe and Japan, as well as in the emerging markets including Asia, Europe and parts of Latin America.
US and international multinationals could see business continue to improve as the recovery spreads across the globe. Mid-cap and small-cap companies worldwide could benefit further as domestic economies share in the improvement in a world wherein decoupling of the world’s regional economies from one another remains firmly debunked.
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