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Wow, what a week!
Last week we got to watch the market overcome one of the largest crises that it faced in the last year... the Debt Ceiling.
The politicians opted not to take this right up to the eleventh hour and do the market a favor by passing and signing legislation to raise the debt ceiling. Instead, the deal got hammered out midway through last week which allowed the market to celebrate with a long-awaited rally. I'm being a little sarcastic here, I hope you picked up on that.
Sure, last week's rally was one of the strongest since March of this year, but I'm guessing that investors are a little disappointed that they didn't wake up to the premarket trading another 2% higher, I mean is that it? The rally is over already?
Yes... and here's why.
The market has been operating on a different style of discounting for the last year.
We've gotten so used to a crisis looming over the market's head. it's been so long that we've gotten to the point where we just assume that the crisis will be averted.
Let's walk through a few.
Earnings
The last earnings season was forecast to be one of the worst earnings seasons in decades due to the slowing economy. Here are the stats for the season as it comes to a close:
- 78% of the S&P 500 Companies beat their EPS expectations while 75% beat their revenue expectations. That's an improvement in the last quarter.
- On March 30, the expected earnings decline was -6.7%. All ten sectors reported higher results than that forecast.
- 66 of the S&P 500 companies issued negative guidance for the next quarter while 44% provided positive guidance.
I could go on and on, but you get the idea, those numbers weren't nearly as bad as expected.
Interest Rates
For more than a year now the market has been forced to deal with rising interest rates. The alternative to that? Out-of-control inflation is something that has already cut the consumer's confidence to the core.
The historically rapid ascent of the Fed's interest rates ranks among the most aggressive in recent history, but the market has been able to avert that crisis.
How? Simple, by looking forward to the better times when the Fed will undoubtedly be lowering rates. By some accounts, this could come as soon as the meeting in late July. At least according to the CME FedWatch tool.
A look at the current Fed Funds Target by way of the futures market shows a healthy chance for another 25bps increase to rates in July though. That's the next "crisis" that we'll see, and the market will climb the Wall of Worry all over again.
But That Crisis Isn't Until July, How Does the Market Trade This Week?
Well, we're heading into the week on a tepid note.
This morning we got reports on the economy in the form of April's Factory Orders and the ISM Non-Manufacturing Index. Both were lower than expectations, tellin…
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About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.