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Global News to Hold Down Bounce?

Sheraz Mian

A rating downgrade of Japan and growth warning for Europe provide the backdrop for today’s action, likely forestalling carry-over of Monday’s positive momentum. We should keep in mind, though, that Monday’s bounce followed almost two weeks of persistence negative performance and is not by any means reflective of a trend reversal. The issues that have been weighing on the market lately are still very much with us and not going away anytime soon.

The OECD’s growth warning for Europe, released as part of the organization’s twice-yearly global economic outlook, hardly qualifies as fresh news. The region’s fiscal problems have remained, and likely will remain, a drag on global growth for a while. If anything, the OECD’s forecast of negative 0.1% growth in the Euro-zone in 2012 and positive 0.9% growth in 2013 may be on the more optimistic side. It is at least more optimistic than the corresponding forecast for the region from the IMF.

European leaders are getting together on Wednesday to take another look at their approach to region’s problems and likely incorporate a so-called pro-growth element to their existing policy framework advocated by France’s newly elected president. Greece remains the biggest question mark on the group’s future as that country goes through another unsettling election next month. Contagion risk from the potential Greek exit from the currency union is a major cloud over the region’s financial system, which will no doubt have a negative impact on its growth prospects.

On the home front, we have the April Existing Home Sales numbers coming out a little later, with the annualized monthly sales pace increasing from the March level to 4.6 million. Housing data has been steadily improving lately, though it still has some way to go before it can be counted on to start contributing to economic growth. The expected April sales pace of 4.6 million will be up from the 2011 total of 4.26 million and 2010’s 4.19 million. But for context, keep in mind that at its peak in 2005, existing home sales were north of 7 million.  

In corporate news, we got better-than-expected results from Best Buy (BBY) this morning. The electronics retail giant is looking for new leadership as battles doubts over its ‘big-box’ business model in the face of stiff competition from online players such Amazon (AMZN). We also have a positive earnings surprise and dividend raise from Ralph Lauren (RL) this morning.

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