PMC Weekly Review - April 24, 2015
A Macro View – A World of Low Expectations
The past week saw a deadline in the Greek crisis that was anything but, and a slew of large technology company earnings announcements that defied low expectations. The result: the Nasdaq composite index finally closed above 5048, its March 2000 high at the peak of the technology bubble.
Although anxiety remains that stocks are inflated “artificially” by central banks’ easing, there is little similarity between stock valuations today and their nosebleed ones of 2000. Today, larger technology companies are now global behemoths run with both financial discipline and a focus on innovation. Google, Amazon, and Microsoft reported earnings this week, and despite slower revenue growth than hoped for, each was impressive in absolute terms. For instance, Google’s revenue exceeded $17 billion for the quarter, compared to about $15.4 billion a year ago. Even though the rate of growth slowed, a 12% revenue increase in a world of relatively flat global growth still is impressive.
Not all companies have done as well, of course, and S&P 500 earnings this quarter appear poised to decline for the first time in several years. In addition, the interminable Greek crisis shows no signs of ending. What had been billed as a hard-and-fast April 30 deadline by which Greece would convince its lenders to extend more credit turned out not to be much of one at all: negotiations and heated rhetoric continue. Whether it ends with a new deal or a Greece exit (“Grexit” ) from the Eurozone, it remains a concern—perhaps neither existential nor dire, but one to watch. Nonetheless, barring Greece’s triggering a Lehman-like domino effect, this market environment is still relatively placid, with a bias to equity upside. Bonds are in an understandable holding pattern, as markets game when or to what degree the Fed raises rates, but even so, volatility is low. Of course, all of this can shift rapidly, and sentiment, always slippery, remains so. But for now, critical risks seem less evident.
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