Monday, May 20, 2013
Stocks may not do much in today’s session given the almost empty economic calendar, but the bias will likely remain to the upside. The rest of this week has a number of manufacturing and housing related reports on deck, but the spotlight will remain on the Fed as speeches by Fed officials and other Fed related data will keep the future of the QE program center stage.
Last week’s economic data was for the most part negative even though consumer sentiment and retail sales numbers were on the positive side. The Philly Fed and Empire State regional manufacturing surveys, Industrial Production, Jobless Claims and even Housing Starts all came in weaker than expected. But stocks were still able to eke out a gain, with the S&P 500 up +2.1% on the week for another record close. The Fed has been and continues to be the key driver of this rally, with investors assigning low odds to the possibility of imminent changes to the QE program.
Wednesday will be particularly notable on the Fed watch as not only will Bernanke be on the Hill to testify before Congress that day, but the minutes of the last FOMC meeting will also come out that day. Many view the eventual scaling back of the QE program as a given, but timing remains uncertain. Last month’s FOMC minutes seemed to indicate growing momentum from within the committee to start making changes to the program this summer. But Fed doves, which includes Bernanke, may not be ready yet to do any tinkering at this stage, particularly given the still-fragile economic scene in a restrictive fiscal backdrop.
On the earnings front, the Q1 earnings season is now at its last leg with just 35 of the S&P 500 companies still to report results. We will get closer to the finish line by the end of this week as by then 25 of those remaining companies will have reported results. Besides Target (TGT) and Gap (GPS), this week line-up of earnings reports includes Home Depot (HD) and Lowe’s (LOW) which have had impressive runs lately given the housing momentum. These two retailers likely benefited from the Sandy related reconstruction activities as well.
Overall, Q1 earnings are on track to be up +2.2% on -1% lower revenues. In terms of dollar earnings levels, earnings are expected to total $251.6 billion, the all-time highest quarterly total. Earnings estimates for Q2 have come down, though expectations for the second half of the year have held up quite well. Total earnings in 2013 Q2 are now expected to be up +1.2% on -0.7% lower revenues. This is a drop from the +3.9% total earnings growth expected in Q2 on +0.5% higher revenues in early April.
Director of Research
Monday, May 20, 2013