PMC Market Commentary: April 25, 2014
A Macro View – In a Holding Pattern
At the beginning of April, it was widely expected that earnings season would shape the markets decisively. After all, with a listless markets punctuated by a few bouts of volatility each month, direction has been lacking, and first quarter earnings held the promise of providing some direction.
With many companies (though by no means all) now having reported, it appears however that the market remains largely where it has been: in a holding pattern. While more companies have surprised by beating expectations for both earnings and revenue, any excitement that might generate is understandably leavened by the fact that expectations had been relatively muted. Analysts have learned in recent years that they receive less criticism by underestimating and then having companies beat low expectations than by overestimating and having companies miss. The same lesson has been well learned by a preponderance of CFOs of publicly traded companies.
That said, there have been more than a fair share of “clean” earnings beats, where companies simply performed better and at a higher level. Among those are familiar technology and consumer behemoths Microsoft, Apple and Amazon. Given how hard technology stocks sold off in March and into April, and given how many commentators were quick to herald the “death of tech,” those results should at least give pause. In others sectors, the results were more ambiguous: some banks did well (Morgan Stanley, Wells Fargo), while others less so (JP Morgan); some industrial and transportation giants did well (United Technologies, Caterpillar), and others less (UPS). It is hard to generalize from these results, and that may help explain why markets overall are stubbornly range-bound.
Not surprisingly, most funds—passive especially, but active as well—have been equally range-bound. Unless a fund is highly exposed to the tail-end of risk, concentrated in biotech names or very low-grade debt, it has been challenging for active managers to add substantial upside though most have, as well, avoided damaging downside.
Even the continuing turmoil in the Ukraine, with war or a Russian invasion very much part of a possible future, has not overly roiled markets. In fact, the markets have digested the civil war in Syria, political chaos in Venezuela, and problems elsewhere in the world with a degree of calm that had been absent for much of the years between 2008 and 2013.
Finally, all of the macroeconomic numbers continue to show a steady unspectacular U.S. economy, with less-than-conclusive signs. One-week housing is up, then down; regional manufacturing surveys send mixed messages; employment trends are decent, but wages are not. Here as well, those seeking unambiguous clarity are disappointed.
But what is clear is that all is currently quiet on the western front (and the eastern as well…). That’s either a lull on the way to the next crisis, or a healthy period of digestion and consolidation. You can make arguments either way, but for now, the available information suggests stability trending towards growth.
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