April ended on Friday for most financial market participants. U.S. stocks climbed in the last hour of trading – funny how so much new information comes in the last hour of trading for stocks to abandon their day-long trajectory. It is also funny that most last-hour reversals are of the positive variety. So much for market efficiency.
What is funny about the Bloomberg article is the statement that stocks have beaten ‘profit’ expectations and therefore the implication that stocks have no business declining. S&P 500 corporate profits are now down for five quarters in a row (based on ‘as reported’ EPS). Clearly, an index trading near its all-time highs has not incorporated this dismal bottom-line.
The whole idea behind polling expectations is that market prices reflect consensus expectation. Hence, when expectations were lowered, stocks should have dropped sufficiently enough for them to rise when actual results turn out better than expectations. That does not work. The market is rigged to go higher, for the most part.
Check out this Deutsche Bank settlement on gold and silver:
Deutsche Bank AG agreed to settle U.S. lawsuits accusing it of conspiring with other banks to manipulate gold and silver prices at investors’ expense, court papers show…. Deutsche Bank also agreed to help the plaintiffs pursue claims against other defendants. [Link]
On its part, monetary policy has ridden to the rescue of financial markets countless number of times in the last three decades. It is no longer a joke that the Federal Reserve has a S&P 500 target. Indirectly, Raghuram Rajan made the same complaint, nearly a month ago.
In an otherwise well-written article, John Authers tries to end on a hopeful note, ignoring empirical experience of over 15o years. How can earnings now rise, after seven years of recovery? It is time for a downturn. But, he wants to end on a hopeful note:
If companies demonstrate that they can generate the earnings needed to deal with their leverage, there should be a rebound for the market, and a period of underperformance for dividend-yielding stocks. Until that happens, the anxiety will continue. [Link]
The article by John Authers has a great chart on trends in US corporate debt and EBITDA. Digest it.
Digest the chart on retail sales growth and retail sales employment from this post too and the question posed at the end of the link is a fair one. I have posted the chart below.