There are still some numbers to come forth that were delayed due to the government shutdown. Most notably is tomorrow’s employment report, but generally speaking all of these data points are likely to be looked at as old news. Barring some real shockers the markets, or more accurately, the analysts on TV, will proclaim that what is important is the coming reports. This is human nature of course, and the truth is these numbers really are just one snapshot in time. The fact that they are a couple of weeks old is only one reason to look at them calmly.
That doesn’t mean it will be a slow week. In addition to those government reports there is a flood of earnings due this week:
It’s the height of earnings season this week, with about a third of the S&P 500 joining 10 Dow components in reporting. So far, so mediocre. We’re one-fifth of the way home at this point, and only 53% of the S&P companies that have reported managed to top Wall Street sales estimates. The four-year average is 59%. Earnings aren’t any better. Of those reporting so far, 69% have topped targets, compared with a four-year average of 73%.
Nothing to get excited about thus far, but still plenty of companies are yet to weigh in. Add everything up, and it should be a big week though. All of the somewhat manufactured angst that drove market talk during the shutdown is now behind us and this huge amount of data will be the focus going forward. With the market doing extremely well lately the prejudice will be on the downside. If it looks like the economy is continuing its struggles the reaction could be rough.
Investors seemed to be smarter than the average cable news host, and reacted with serenity even as Washington ratcheted up the rhetoric. Still, earnings are what drives things in the medium term and any downside surprises will be unwelcome news. Whenever everyone is either breakeven or profitable, as nearly all investors are at the moment, the slightest twinge can send people to the exits.
As you know, we here at PrimeRates are not in the prediction business, but it doesn’t take a psychic to be wary of earnings season. Especially when the markets are at or near new highs. The risk/reward ratio may be skewed during these times. Now, don’t misunderstand, earnings are just one data point, like any others. And Wall Street will almost immediately be looking ahead to the next quarter. Still, there is a sense of calm, if not ennui involved in the markets at the moment. That could be just smart thinking as it turned out to be during Washington’s squabbles. Or it could be complacency and the economy is just not doing well enough to support these higher prices. When markets are at elevated levels it never hurts to keep a close eye on the nest egg. We’ll see what happens soon. Have a good week!