Friday, February 24, 2012
Positive momentum in recent weeks have pushed the broader stock market indexes to new highs. Driving these gains have been consistently strong reports about the U.S. economy and favorable developments on the European front that have reduced the odds of a disorganized Greek default.
But with market expectations catching up with the improving domestic economic scene, it will increasingly get difficult for economic reports to surprise to the upside. The fourth quarter 2011 reporting season made abundantly clear what many had been suspecting for a while that the earnings growth story is now in the rearview mirror.
With all these props effectively removed, can stocks continue to inch up? The market has consistently defied my skepticism in recent weeks and I wouldn’t be complaining if it continues to do that in the coming days. But given the lack of any plausible catalysts on the horizon, it will be difficult for the uptrend to remain in place.
One key variable that has the potential to provide such a catalyst is the housing sector, where the market is sensing some ‘green shoots’. Recent reports on the housing front have undoubtedly been favorable, but it may be premature to jump on the housing-is-on-the-mend bandwagon. The January New Home sales numbers coming out a little today will provide some more color on this emerging story. We also have the University of Michigan Consumer Sentiment survey for February on deck for release a little later.
The earnings season is effectively over, but we do have a couple of important reports this morning. J.C. Penney (JCP) came short of expectations in its quarterly results as weak same-store sales numbers and heavy markdowns weighed on margins. The Washington Post Company (WPO) posted better than expected results. After the close on Thursday, we got positive earnings surprises from insurance giant AIG (AIG) and online business software maker Salesforce.com (CRM).
Director of Research