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Great(ly reduced) Expectations
Posted By Barry Ritholtz On April 28, 2003 @ 10:59 am In Finance | Comments Disabled
Also known as “Not so Great Expectations “: After a relatively strong start last week, the markets pulled back on Thursday and Friday. Headline writers blamed poor economic releases, but after the recent run up, profit taking and consolidation is just as likely a culprit.
The key to this period of digestion are pullbacks on light volume, and crucial support levels holding. On the Industrials, that’s the 8100-200 level; My line in the sand on the SPX is 850-60 and on Nasdaq is 1340-50. A breach of these levels would suggest that something more distributive than mere consolidation was occurring.
Meanwhile, the earnings parade continues this week, with companies mostly beating greatly lowered expectations. According to the WSJ , Q1 earnings are up on average 11.7% (329 S&P 500 companies reporting), better than the 8.5% predicted Thomson First Call’s analyst consensus.
As the War recedes from view, SARS is beginning to dominate the wall of worry which the markets have been successfully climbing for now. (Who knows what’s up next when SARS finally fades?). Most of these ungame-able issues have 2 things in common: data points beyond the ken of traditional analysts, and a ready made excuse for CEOs/CFOs to blame their lack of visibility upon.
Their lack of clarity has little to do with those externalities. Rather, we are in an anemic, jobless economic recovery. There’s still no visibility on IT spending increases, mostly because companies do not need any additional Technology. Corporations are still cutting – rather than adding to – head counts. We wonder how a 2nd half recovery can manifests itself sans a rise corporate spending or hiring?
Perhaps too many investors are pinning their hopes on a tax cut – one which is very back-end loaded, and not very likely to stimulate hiring or spending, at least in the short term.
In normal recessions, the resumption of consumer spending is what kick starts a weak economy. This recession, however, the consumer has hardly faltered. Having been made flush via multiple home refinancings, the consumer is more likely in slow their spending than actually increase their already high rate of borrowing and spending.
It’s still way too early to declare this the start of a new Bull market – even if (and that’s a big if) the Bear has been mortally wounded. “It’s the economy, stupid” is more than a mere political slogan; It’s the answer to the question “Where is the market going?”
Quote: “Patience and perserverance have a magical effect before which difficulties disappear and obstacles vanish. -John Quincy Adams , 1767-1848, 6th U.S. President
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2003/04/greatly-reduced-expectations/
URLs in this post:
 Great Expectations: http://us.imdb.com/Title?0025202
 WSJ: http://online.wsj.com/article/0,,SB105148246099189500,00.html?mod=mkts_main_promo
 Report: Aziz Tells Interrogators Saddam Is Alive: http://story.news.yahoo.com/news?tmpl=story&cid=578&u=/nm/20030428/ts_nm/iraq_aziz_report_dc_2
 14 Things to do with your Tax Refund: http://cbs.marketwatch.com/news/story.asp?guid=%7BDCDC95F4%2D993A%2D41E1%2DBD90%2DC80F429FDC85%7D&siteid=mktw
 Tokyo Stocks Hit 20-Year Low: http://story.news.yahoo.com/news?tmpl=story&cid=580&ncid=580&e=1&u=/nm/20030428/bs_nm/markets_asia_dc
 Monumental’ Piracy Ruling Hits Hollywood: http://story.news.yahoo.com/news?tmpl=story&cid=769&ncid=768&e=1&u=/nm/20030428/music_nm/music_grokster_dc
 Get Ready for the New Cold War: http://www.wired.com/wired/archive/11.05/view.html?pg=4
 The Iraq war’s invisible winners: http://www.reason.com/links/links041803.shtml
 John Quincy Adams: http://www.whitehouse.gov/history/presidents/ja6.html
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