EmailIt is the macro issues of central banks and GDP versus earnings. The macro issues are taking the gold.
Second quarter real GDP rose at an annual rate of 1.5%. That is lousy, but expectations had dropped so low that the spin is coming out as "not too bad." Granted, it isn't recession, but the markets have apparently become so inured to lousy economic data that a 1.5% growth rate actually seems decent. Futures rose on the report and indicate an up open of about five points in the S&P 500 index.
The market enthusiasm over European Central Bank (ECB) president Draghi's comments yesterday is being tempered by some cautious remarks from the Bundesbank about what specific, coordinated actions Europe should take to address the euro crisis. The bottom line, though, is that the markets expect significant action. The Spanish 10-year yield plunged yesterday and is stable today at 6.91%.
Earnings reports are decidedly mixed. Amazon stock price is higher despite a generally in-line report including a slight miss on revenue. Facebook stock price is lower, McKesson missed on revenue and is lower, and Amgen and Merck are higher on a good reports.
Overall, almost 60% of companies have reported revenues below estimates. That is a worrisome trend that has not received enough attention. Also of concern is that third quarter earnings estimates are being lowered as a result of negative guidance from many companies. There is a very good chance that third quarter earnings post a decline.
The earnings reports just aren't very good in aggregate, and the outlook for earnings for the rest of the year is troubling. The Fed and the ECB will do what they can to promote economic growth, but the effectiveness of future action is uncertain.
The S&P 500 index has been in a range of approximately 1300 to 1400 the past three months and sits a bit above the middle of that range. That isn't too bad for the summer months, but the dreaded August approaches. Last August, the markets took a dive on political uncertainty. There is still plenty of uncertainty, and that is in the back of a lot of people's mind.
Founder and Chairman, Briefing.com
