Welcome to the calm before the storm.
Of course, no one is talking about the “bomb cyclone” storm sweeping through the central US but the incoming earnings storm. Given that Wall Street has set the bar so low for results, companies may just drag themselves over it. The fun starts with J.P. Morgan and Wells Fargo WFC, -0.10% on Friday, following by Goldman Sachs GS, -0.07% and Citigroup C, +0.60% on Monday, with Netflix NFLX, +1.02% and a bunch of others also rolling out ahead of the Easter break.
“[T]he U.S. earnings’ reports will be the next catalyst that will either push the indices higher, in case of continued corporate profitability, or send equities lower if investors start seeing further evidence of a domestic slowdown,” said Konstantinos Anthis, head of research at ADSS, the Abu Dhabi based financial services firm, in a note to clients.
Our call of the day, from Hussein Sayed, chief market strategist at broker FXTM, agrees, as he says it’s time for investors to start holding Wall Street itself responsible for further stock market gains.
“The boost provided to equity markets from the shift in central banks seems to be exhausted with the S&P 500 standing 1.7% away from an all-time high. Investors hoping for an interest rate cut may not see one coming any time soon, suggesting that they shouldn’t continue betting on monetary policy to push equities further,” he told clients Thursday.
Pundits have been telling us for a while that central banks can’t keep rescuing this stock market after years of easy-money policies, though the Fed managed to do just that at the start of the year. In Wednesday’s minutes from its March meeting, the U.S. central bank showed no indication of any cuts to come, with some members even saying they’d consider a hike, depending on data. The market is almost even on the chances of a cut vs. no change in December, but the likelihood of a decrease in rates rises in January 2020, according to the CME Group’s FedWatch tool.
Sayed says this earnings season will take a hard look at whether companies can stand on their own two feet as U.S. government spending boosts from 2018 fade. So watch profit margins — a gauge of how profitable a company’s business is — and guidance, says Sayed.
“The index has risen 15.2% so far year-to-date, and for the rally to be sustained, investors need assurance that we’re not going to hit an earnings recession. A dovish Fed won’t be enough to keep the party on,” he says.
Last word goes to asset manager Guggenheim Investment, which told clients in a recent research note, that they aren’t expecting a savage recession, but stocks could get crushed due to lofty valuations and one more thing — lack of central bank firepower.
