A comment by European Central Bank (ECB) president Draghi that the bank will do everything possible to save the euro has provided a significant boost to global stock markets. The sustainability of the boost is questionable.
S&P futures were down five points very early this morning. Then Draghi made his comment, and they are now up 15 points. That amounts to a 1 1/2% move for the S&P. That is a strong and important move, but it is also restrained enough to reflect doubts about just what the ECB can accomplish.
Wall Street Journal articles this morning cover the following topics: weak lending by European banks (particularly in Greece, Italy, and Spain) and deposit outflows from Spanish and Greek banks; Lloyds posting a loss; Alcatel slashing jobs; and how European economic weakness is hurting US profits. Regardless of ECB action, conditions in Europe will remain stressed.
There is also the possibility that the US stock market will get a boost later this week, or early next week, from expectations that the Fed will announce further actions to stimulate the US economy. The need for such action is clear.
Earnings reports continue to raise concerns about the profit outlook for coming quarters. Revenue misses from large multinationals are becoming common. The move in the dollar is only partly a factor.
3M reported earnings above expectations, but had a significant miss on revenue, which was down 1.9% from a year ago. AmerisourceBergen, Alcatel-Lucent, AstraZeneca, Ball Corp, Boston Scientific, Bunge, Dow Chemical, Hershey, International Paper, McGraw-Hill, Raytheon, and United Technologies are among the companies just this morning that reported revenue below forecasts.
Colgate-Palmolive, ExxonMobil, Kimberly-Clark, L-3, Occidental Petroleum, and Sprint reported revenues ahead of expectations. Yet, for these companies, the respective year-over-year revenue changes were: 2.0%, 1.5%, 0.2%, -5.5%, -6.6%, and 6.4%.
Top line growth is lousy. Continuation of that trend the rest of the year with weak global economies will make it very hard for earnings gains to materialize.
New claims for unemployment for the week ended July 21 fell to 353,000 from 383,000 the prior week. The new data is for the week after that in which the payroll survey for July was conducted. Expectations are for a fourth straight modest monthly gain in the 50,000 to 100,000 range for nonfarm payrolls to be reported August 3.
Actions by the Fed and the ECB to address the ongoing credit and economic crises are certainly welcome. It is far from clear that such actions will be able to reinvigorate revenue and profit growth through the end of this year. For that reason, today's pop in the S&P futures should be seen as only a modest reduction in the risk premium on stocks. The indicated up open would merely eliminate the losses already incurred so far this week.
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