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After weeks of uncertainty, markets shook off the doldrums and rallied on the back of earnings beats from market heavyweights. Without any major economic events having occurred last week, market performance was driven by reactions to the earnings reports of a few key players.2
Have earnings reports justified the stock market’s reaction? Not really. Right now, it seems as though expectations going into earnings season were so low that any positive news was greeted with cheers. While total profits for 202 S&P 500 companies were up 8.7% over first quarter 2014, revenues were essentially flat. Weak revenue numbers indicate that companies struggled with slow demand last quarter and achieved profitability through cost-cutting measures. Looking ahead at the rest of earnings season, some analysts project that overall earnings for S&P 500 companies will be flat on 5.1% lower revenues.3 Worse, currency headwinds from a strong dollar and global economic issues may affect demand in the second quarter as well.
The week ahead is packed with important economic events: a Federal Reserve Open Market Committee meeting, the first estimate of Q1 economic growth, and a raft of company earnings reports. No interest rate changes are expected at the Fed’s policy-setting meeting, but officials may clarify their thoughts on first quarter economic performance.
Right now, the future timing of rate changes is anyone’s guess. Economists are focusing on determining how much of weak first quarter data is weather related and how much was due to lingering economic forces like a strong dollar and soft global growth. Though a June rate hike isn’t off the table, some Fed officials are hinting that higher interest rates might come later in the year.4 With respect to markets, we can expect further volatility as investors digest earnings reports and economic data.
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On a more personal note…
I am so proud of my two sons as they continue to grow and accomplish great things. This week, Trish and I learned that Brendan chose and got accepted to the University Of Delaware. He will major in Management Information Systems on a partial scholarship.
We also witnessed Connor, a sophomore as he continued his dominance on the baseball field this week, pitching a one hitter, complete game against Mahopac; who by the way is a AA Team and has a record of 7 wins and only one loss. Way to go guys!
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