Market Commentary

After a brief respite it appears as though sentiment
July 20, 2010

After a brief respite it appears as though sentiment has again turned dour.  I ask however is this change in attitude based upon fact or rhetoric?  One high profile economic consulting firm stated in its weekly feature piece earnings have been “uninspiring” and are “not meeting expectations.”  While I will readily admit one can slice and dice data a gazillion ways, as per Bloomberg of the 25 S & P 500 companies that have thus posted profits, 23 have exceeded lofty views by approximately 21%.

To remind all profits are expected to increase around 34% for the quarter.  On April 1 results were expected to rise by 25%.  As also noted there were no high profile earnings warnings.  In my view the earnings released to date does support the above opinion.

Because of the events of the last 30 months all are extremely nervous about tomorrow fearing a repeat of those horrid events.  This response is to be expected following any cathartic trauma.  However it is because of this massive fear is why I am optimistic about tomorrow.  

As noted many times, the markets are frightful of Washington.  About two weeks ago I penned there is about a 50% probability there could be tectonic change in Washington.  Little did I know how prophetic my remarks would become in such short order.  Last week White House Press Secretary all but conceded the House and today there are an infinite number of headlines suggesting the Senate may follow the same path.  Some of the stated reasons for plunging popularity…massive deficit spending and over burdensome regulations.

Tomorrow FRB Chairman Bernanke testifies to Congress about the state of the economy.  In my view little is expected from this bi annual event.  As inferred above fiscal policy is politically paralyzed.  The FY2010 deficit is expected to reach $1.335 trillion, down marginally from $1.4616 trillion in FY2009, is fodder for the Republicans and anathema for the Democrats.

Economically the Central Bank is anticipated to reiterate past comments the recovery is still intact albeit growth downshifted because of the “headwinds” from Europe.

Commenting briefly about yesterday’s market action, stocks ended moderately higher following a volatile day over optimism corporate earnings will support prevailing valuations.

Last night the foreign markets were down.  London was down 0.66%, Paris down 1.30% and Frankfurt down 1.15%.  Japan was down 1.15% and Hang Sang up 0.86%.

The Dow should open moderately lower even as earnings are beating expectations.  The market is focusing on top line revenue growth of several of the market leaders, revenue growth that has been disappointing.    I ask is this a realistic view?  Bloomberg stated revenue growth of the companies that have released results is up 4.1% more than estimated as per Bloomberg.  The 10-year is up 6/32 to yield 2.93%.