After ending the week on Friday in the red, U.S. stock markets rallied Monday on “signs of life in the housing market.”
“The rally hit a wall last week after weaker-than-expected reports on retail sales, housing and weekly jobless claims,” reports CNNMoney’s Ben Rooney. “That called into question the outlook for economic growth and put investors on the defensive.”
And without hard economic data on Monday, markets were left to move on smaller news.
That meant that “not-as-bad-as-expected” news has been able to spur a rally across the markets.
“Investors were also encouraged Monday by better-than-expected earnings at the home-improvement retailer Lowe’s. Its shares were up 6% after it said first-quarter earnings fell 22% but per-share earnings of 32 cents topped the average estimate of 25 cents and the company boosted its full-year earnings outlook,” writes Peter McKay of MarketWatch.
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Rival Home Depot (HD:NYSE) reports its earnings on Tuesday.
Marc Stern, chief investment officer at Bessemer Trust, calls this type of news “less-worse,” and told The Wall Street Journal, “For this rally to sustain itself, it can’t simply be a matter of ‘less-worse’ forever.”
Investors want to see growth, he says.
The WSJ’s E.S. Browning writes, “Investors are starting to ask for something more. They want signs that actual economic improvement is coming. They didn't get anything like that last week, and they began selling stocks again.”
One government official says we haven’t hit bottom yet. U.S. Postmaster General John Potter said during the National Postal Forum convention in Washington, “I wish I could say we’ve hit bottom already. But we haven’t. Like all sectors, we are hoping for a turnaround.”
Potter said mail volume could continue to fall, making it harder to return to profitability after a $1.9 billion second-quarter loss, according to Bloomberg.
And for an actual recovery, you need to see profits moving higher, not losses.
That signals that there’s more darkness ahead, even if the pitch-black era has already passed.
The WSJ reports:
Credit Suisse warned clients to brace for a further pullback after the big gains. Its global equity strategist, Andrew Garthwaite, published a report saying any stock recovery was more likely to look like a W than a V... New York research firm Strategas Research Partners was even more pessimistic. It warned clients that economic performance could look more like a square-root sign: down, up and then sideways.”
Zach Scheidt, editor of Taipan’s New Growth Investor, writes, “In total, earnings were seen dropping 35% from the same quarter in 2008. When you consider just how broad the S&P 500 actually is, covering Technology, Healthcare, Energy, Financials and so on, a 35% decline is quite astounding.”
By now more than 90% of all S&P 500 companies have reported their earnings.
“Stocks have been bid up sharply from the panic lows and at this point it looks as if we’ve already accounted for the recovery in the market and now we’re just waiting for the recovery to hit Main Street,” writes Zach.
In general, Zach thinks large, economically sensitive companies may have a tougher road ahead of them than expected.
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