It was a pretty good week for the bulls. There were plenty of worries about earnings, the Fed, interest rates, the strong dollar and first-quarter GDP, but the stock market managed to close out the week strong. The Dow moved back above 18,000, and the Nasdaq came within about five points of the high-profile 5,000 level. Earnings season is finally in swing, and we should get some great information in the next couple of weeks as to just how strong or weak the U.S. economy really is right now. For the week, the Dow and S&P 500 were up 1.7%, while the Nasdaq rose a strong 2.2%.
The week was fairly light in economic news, so investors are now focusing closely on earnings season for answers. Earnings estimates have come down dramatically, which could actually help individual stocks if they can top “lowered expectations.” The buzz out there right now is about how the ongoing strength in the U.S. dollar might sting the big U.S. multinationals this earnings season, so we will just have to wait and see how that theme unfolds. There are also concerns about weakness in purely domestic U.S. companies as well, so again, next week should be very informative.
Driving the Dow on Friday was news that General Electric (GE) would spin off most of its GE Capital financing arm. GE’s stock rose more than 10% on Friday, and it was amazing to see an old “growth stalwart” show renewed signs of life. The stock was above $41 back in September of 2007, and traded below $9 by February of 2009, so it clearly has not recovered as strongly as the rest of the broader market since the post-Lehman meltdown and recession. It is still part of the Dow, though, and it did help give that average a helpful boost on Friday.
Some analysts were saying that regulatory costs are making the banking and finance business less attractive in the “post-Lehman” world, so maybe this had a part in Chairman Jeff Immelt’s and the GE Board’s decision. Either way, GE stock saw a big bounce, and any sort of “rejiggering” by a former “growth darling” like GE certainly seemed to liven up the Dow Jones Industrial Average, if only for a day. By the way, this put GE at a new 52-week high, as well as hitting its highest level since 2008.
So, on we head into earnings season. The stakes are high, since expectations are so low, so look for some possible whipsaw action in individual companies if they beat or fall short of expectations. The earnings season will definitely shed light on whether or not U.S. growth (and global growth) is faltering. On average, economists are looking for a 1.5% first-quarter GDP growth number, although some strategists and economic sages are warning of a Q1 GDP at or below 1%. Most of these worries are likely priced into the current market, but it is still not clear as to how earnings season will ultimately play out.
Aside from earnings, the other “wild card” is what the Federal Reserve might have up its sleeve with regard to interest rates. Despite last week’s ugly employment numbers, there are still comments from some Fed Heads that a June rate hike could still be possible. The Fed minutes this week showed a divided Fed, but the thought of a rate hike in June seems remote. Fed watchers wonder how the Fed could raise rates with lukewarm economic numbers and a GDP heading toward 1% to 1.5%. A rate hike in June or even September seems unlikely, but we will just have to wait and see.
On the political front, the Presidential race is kicking into high gear. Both political parties are aligning and strategizing, and the national press is aligning and strategizing as well. Wall Street has historically loved divided government, and it seems as though that is the exact road we are on again. Even the individual major parties are divided, so Wall Street can probably rest assured that no “major changes” are on the way. This might not be all that great for the country, but investors like certainty, which is probably what we will see all the way to Election Day 2016.
That said, Spring is here, and the Gorilla wishes each and all a wonderful weekend. The Masters in Augusta is underway, so it is a big weekend for golf fans, and it has certainly been an exciting first two days. We will be back in action on Monday, so take a break from the stock market and enjoy your weekend!
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