Commentaries
PMC Market Commentary: July 25, 2014
In many ways, it has been an eventful week, with a slew of earnings on Wall Street and a plethora of geopolitical crises. The earning picture has been anything but crystal clear. For those inclined to see their cup half full, there have been ample positive signs, ranging from a stellar report from semiconductor giant Intel to robust earnings from a number of cloud and technology companies to social media behemoth Facebook and even decent earnings from large banks such as JP Morgan (weighed down by legal costs though it was). For those who believe that there is more economic and corporate weakness on the horizon, there were weak results from Amazon (though those were as much a product of Amazon’s intent to spend and spend to expand) to Microsoft to General Motors. Added to the mix, Goldman Sachs among others cuts its estimates for second quarter GDP, down to a still healthy 3.0% but less than the 3.5% number anticipated as recently as the beginning of July.
Overall, this earnings season will do little to halt the back-and-forth debate about markets, whether they are fairly overvalued or overvalued, and economic trends writ large. A confluence of foreign crises has also taken center stage, with Israel’s incursion into the Gaza Strip, the downing of the Malaysian airline flight in Ukraine and continued tensions between Russia and the West, along with the ever-fluid chaos in northern Iraq and Syria. Financial markets, however, have not reacted strongly to these. That does not make them less important and crucial in the grand scheme of things, but it does reflect a simple calculus that none of these conflicts in and of themselves represent a challenge or threat to the global economic trends that most companies are exposed to. Only if these flash points trigger a series of falling dominos could they jeopardize economic growth or international stability.
So while these hot zones require our attention for any signs of widening crises, whether in the form of intensified tension between Russia and the West that could lead to a spike in energy prices or more turmoil in the Middle East, we are of now left with a series of financial markets that have been in a definitive upward trend even with modest earnings and revenue growth and low yields world-wide. Some believe that augurs volatility and turmoil ahead, but to date it has simply meant steady gains that continue to surprise an investment community primed for a fall.
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