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At the time of writing earlier this afternoon, the S&P500 was trading within 1% of its all-time high from just over a year ago. The S&P is the main barometer of the US stock market, and, as far as many people are concerned, the best measure of US economic health.
 PM Bulletin
  
The apparent strong appetite for US stocks has come despite another disappointing corporate earnings season. For the S&P500, first quarter revenues were down 2.3% on the same period last year while earnings fell 8.5%. This represents the fourth consecutive quarter of year-on-year declines in earnings (the first time this has happened since 2008/2009) and the fifth successive decline in revenues. On top of this there has been a noticeable drop off in corporate buy-backs this year. As buy-backs have previously been a major factor in lifting stocks, any reduction should remove a significant pillar of support.
  
We are now in the final month of the second quarter and in four weeks’ time US corporations will be unveiling their results for the first half of 2016. As with first quarter earnings, the results won’t be pretty – quite simply because the year-on-year comparisons are so tough. This time last year most sectors were doing well (if you exclude energy and industrials). This year they aren’t. Not only that, but there’s very little chance of seeing a significant improvement until we get the fourth quarter comparisons. Nevertheless, US equities are seen as being in a “sweet spot.” This is because Janet Yellen has effectively ruled out a summer rate hike from the Federal Reserve while insisting that the outlook for the US economy is pretty rosy. This is despite Friday’s appalling Non-Farm Payroll miss which (if you consider downward revisions to prior months’ data) wasn’t a complete outlier. In addition (as noted yesterday) the Labour Market Conditions Index has just recorded its fifth consecutive decline and its biggest month-on-month fall since 2009.
  
Are we set to take out last May’s record highs? Who knows. Oil prices are also rallying and helping to give US equities a lift. But there comes a stage where higher crude prices are a headwind to equities, and we’re a lot closer to reaching that point than we have been since last summer. So if you’re long, congratulations! But be careful and keep those stops in place.
  
Quote: The S&P is the main barometer of the US stock market, and, as far as many people are concerned, the best measure of US economic health.
  
Disclaimer:
  
Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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