Friday, July 17, 2009

A good week for equity markets

After the rally of completely oversold equity markets from early March into early June, recent weeks have been so lackluster that they have inspired the thought "why bother". Low volumes, uninspiring economic news, and a clouded consumer outlook sapped the energy of market participants.

This week was a relief. The overall economic and market news has not significantly improved but the earnings news from many corporates turned up only a few big disappointments. Most companies were meeting analyst's targets or modestly exceeding them, with GE a notable exception. This is likely to continue in the second half as analysts are totally gunshy about being seen as too optimistic about anything and for the most part there are no "axes" left on Wall Street who can take a stand and move the market, at least not up. The comparisons to third, fourth, and first quarter earnings to come are going to have headlines like XYC Corp. reports earnings up 50% because their year ago comparisons were so miserable.

There is no vibrant recovery in sight. Credit markets are functioning better, that's good, and equities are functioning too well, meaning too much dilutive issuance. Stimulus is still mostly just a plan, and government spending and taxation plans are too uncertain to be confidence builders. Shoppers are careful and savings are up. There are lots of moving parts to watch, but equities will rise again and make another dramatic move at some point and at least this week was a reminder of that.


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