Daily Market Update – April 16, 2015 (9:00 AM)
With Citibank and Goldman Sachs reporting earnings this morning, they were in line with other major money center bank reports and so all seems well in the financial sector, as we get ready to move forward to the rest of the S&P 500.
So far the week is trading flatly, but that may be a little bit of a victory considering that this quarter will likely continue to be characterized by decreased guidance, decelerating growth in earnings and continued fears about currency.
All of those will also be happening in the context of the possibility of rising energy prices, but at least for the moment we’re not fretting about when interest rate rises will be coming.
What hasn’t been discussed at all, although may still be forthcoming when companies like Dow Chemical report, is what the impact of lower energy costs have been on their bottom lines. To this point we haven’t really seen any evidence of the hypothetical benefits of decreased energy costs, even though they have to be real.
When you consider that at some point the ability of stock buy backs to prop up EPS data is going to have to wane, there has to be something else to propel EPS or the market is going to be in for some major disappointment.
Since the most common way to cut costs and drive up the bottom line is to cut the workforce, that’s not a very good alternative means to grow EPS. It never is, but it would be even worse if coming before anyone ever gets to believe that the marketplace ever even recovered from the 2008-9 drop in employment.
If lower energy costs won’t be the bump necessary to offset decreasing share buy backs, we had better hope that the dollar starts to demonstrate some weakness and that interest rates stay low, even though some rise in interest rates would probably be a good thing for the economy.
But all of that is way too esoteric this morning.
We’re 2 days from the end of the April 2015 option cycle and we still have 2 weeks of trading for the month to live up to its hype of being among the best for the market year in and year out. So far the S&P 500 is up 2%, so it is doing its part when you realize that YTD the market is up only 2.3%.
With this morning’s Housing Starts number being on the light side the market isn’t capitalizing on the Citibank and Goldman Sachs news as it gets ready to open for trading. Instead it is erasing yesterday’s moderate gains and then some.
Hopefully there will be enough moderation in selling to let this week end with enough assignments to fund any buying in the coming weeks as we continue to try and figure out what there is out there that can push markets ahead.
For now, bottom lines that aren’t as bad as we had expected is a good enough reason for stocks to move higher. But that isn‘t the sort of excuse that has lasting power.
Unfortunately, an increase in subscriber numbers to Netflix, the kind that can give a 12% pop to shares in the pre-open, isn’t the kind of thing that finds its way trickling down to the rest of the market.
Someone else will have to do the heavy lifting while others watch House of Cards, but they need to move up soon, before we get tired of hearing the same old “better than expected” refrain to characterize lower earnings and decelerating growth.