Market Update – 4/23/12: “Strong Earnings Drive Stocks”

THE MARKETS

Strong corporate earnings caused stocks to rally last week for the first time this month. The S&P closed up 0.6% for the week, while the Dow closed 1.4% higher, and the Nasdaq trimmed 0.36%. With no domestic economic reports released on Friday, traders turned their attention back to lingering concerns over Europe and China, and markets lost some momentum in afternoon trading. Even so, last week’s positive earnings reports are alleviating concerns about the economy and making investors feel more confident about the rallies we’ve seen this year. With 23% of S&P 500 companies having reported results so far, more than four out of five have beaten expectations by an average of 8.8%. Profit growth in this quarter has also been up 6.2%, according to Thomson Reuters Proprietary Research.[1]

While some analysts are concerned that stocks are poised to repeat their 2010 and 2011 performance – when a mid-year retreat followed an April peak – there are many differences between the economy of the past two years and today. The 2010 and 2011 pullbacks largely occurred because of recession fears and shocks created by the Japanese Tsunami, but the U.S. economy is on more solid footing than at any other time in the recovery. Current indicators point to slow and steady economic growth, and we have already moved away from index highs. If we continue to see positive earnings among the nearly 180 S&P 500 components reporting next week, we may see markets sustain their upward trajectory.[2]

Investors will also be closely watching Tuesday’s meeting of the Federal Reserve FOMC. With an optimistic economic outlook and improving jobs situation, it is unlikely that the Fed will conduct another round of bond purchases. Even so, we will be monitoring the Fed’s statement on Wednesday, and will be certain to fill you in on any outstanding developments. We hope you have a great week!

ECONOMIC CALENDAR

Tuesday: S&P Case-Shiller HPI, New Home Sales, Consumer Confidence
Wednesday: 
Durable Goods Orders, EIA Petroleum Status Report, 5-Yr Note Auction, FOMC Meeting Announcement, FOMC Forecasts, Chairman Press Conference
Thursday: Jobless Claims, Pending Home Sales Index
Friday: 
GDP, Employment Cost Index, Consumer Sentiment

PERFORMANCE

apr12 chart0423 Market Update   4/23/12: Strong Earnings Drive Stocks

 

 

 

 

 

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not available.

 

HEADLINES

Spain’s bond auction sees strong demand from investors. Spain’s central bank sold all the 2.54bn euros of bonds it was offering, with demand higher than expected. These eased global worries about Europe’s lingering debt problems and shows that investors are eager to snap up bargain-basement debt.[3]

Fewer U.S. states reported job gains in March, indicating a slowing of job growth nationwide. According to Labor Department figures, 29 states reported job gains last month while 20 states lost jobs. In more positive news, the unemployment rate fell in most states.[4]

Sales of previously-owned houses dropped in March, despite low mortgage rates. According to National Association of Realtors figures, home sales fell last month by 2.6%. Seasonal factors might be behind the disappointing figures: the first months of 2012 were the strongest in five years, indicating that a mild winter may have encouraged buyers to close earlier, stealing sales from March.[5]

High energy prices may be slowing rural economic growth. According to the Rural Mainstreet survey, higher energy and fuel costs are slowing growth in 10 Midwest and Plains areas dependent on agriculture. Slowing global demand for key crops may also be having an effect on growth.[6]


 

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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
The Housing Market Index (HMI) is a weighted average of separate diffusion indices based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. Each resulting index is then seasonally adjusted and weighted to produce the HMI.
The BLS Consumer Price Indexes (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. Survey responses are seasonally adjusted and weighted to produce a composite index.
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