Last week’s holiday-shortened week came to a close with four consecutive positive sessions for the S&P 500 that erased most of the recent losses. It has certainly been a volatile April causing a 5% upswing in the S&P 500, which has now settled back above the 1850 level – a level that has served as both key technical resistance and now again support. The recovery last week forced many short-sellers to cover their positions in some of the most beaten-down former momentum favorites. The bulls will now try re-test the all-time highs set in early April around the 1900 mark on the S&P 500.
U.S. economic data again showed modest but solid improvement. Retail sales also jumped in March by the most since September 2012, including a pickup in vehicle sales, demonstrating pent-up demand from the winter weather. That being said, looking at the first quarter as a whole, retail sales lagged far behind the activity in the fourth quarter and will likely be a material drag on Q1 U.S. GDP.
For the week, the S&P 500 was up +1.73%, the Dow gained +1.47%, and the MSCI EAFE (developed international) rose +1.17%.
Here are the 3 stories this week that rose above the noise:
Risk of Stock Pullback Continues
With last week’s market rebound, talk of a major correction has faded. However, many money managers believe that the risk of a sharp pullback has been delayed, not eliminated. Equity markets have been so strong in recent years that major indexes haven’t dropped 10 percent or more since September 2011, which is twice as long as the typical once every 16 months.
Additionally, the markets appear strained as the number of stocks trading at record highs is off significantly and volatility is on the rise. Positively, while valuation is becoming more extended we are not at levels seen during prior peaks.
Companies Are Beating Earnings Estimates—but Don’t Be Fooled
Alex Rosenberg summarizes the results of earnings season thus far on cnbc.com. As detailed in the article, although it remains early in earnings season with less than 20 percent of companies having reported first-quarter results, those that have reported are beating estimates for earnings and revenues at a lower rate than has been typical over the past four years.
At this point, it looks like S&P 500 companies will report a year-over-year earnings decline for the first time since 2012 and overall revenue numbers have also been below expectations in aggregate. Nonetheless, investors appear to be looking past first-quarter earnings, which in some cases may have been impacted by severe weather, and continue to price in a rebound in earnings growth for the remainder of the year.
Economists Expect U.S. to Shake off Winter Slowdown
According to the latest National Association for Business Economics survey, economists are more upbeat about the economy now that we have escaped the brutally cold winter that negatively impacted economic activity during the first three months of the year.
Recent data ranging from retail sales to industrial production has pointed toward a rebound in economic growth. Overall, 72 percent of economists polled in the survey feel that U.S. GDP will grow by 2 percent to 3 percent in 2014, ahead of 1.9 percent GDP growth in 2013. Additionally, 80 percent of survey respondents expect the Federal Reserve to end its quantitative easing program by year end.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
