Weekly Economic Indicators: Earnings Driving Growth

The schedule of economic releases for the week of April 29th is as follows:

  • Monday:  Personal Income and Outlays, Pending Home Sales Index, and Dallas Fed Manufacturing Survey
  • Tuesday:  FOMC Meeting Begins, ICSC-Goldman Store Sales, Employment Cost Index, S&P Case-Shiller HPI, Chicago PMI, Consumer Confidence, and State Street Investor Confidence Index
  • Wednesday:  Motor Vehicle Sales, ADP Employment Report, PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending, and FOMC Meeting Announcement    
  • Thursday:  Challenger Job-Cut Report, International Trade, Jobless Claims, Productivity and Costs, and Fed Balance Sheet
  • Friday:  Employment Situation, Factor Orders, and ISM Non-Manufacturing Index

Peter Costa, Trader and President of Empire Executions, and CNBC Market Commentator tells us that the correction we got a few weeks ago is not what traders have been looking for; a selloff and retracement is not a correction. We need a 5% dip in the major indices and for it to stay there for a while. The soft patch in the US and China could provide the underlying reason for the pullback. "Spring showers are fertilizers for those August flowers," said Corta. We could get some moves toward the downside, but it will be short-lived. However, in the long term, Costa believes the equity market is going higher for the remainder of the year. He predicts the Dow to be at the adjusted all-time highs of 15700. Investors don't have anywhere else to put their money, and money needs to be put to work. There is no growth in fixed income and no safety in global markets, leaving the US equity market as the only choice for investors.

FOMC Meeting

Costa said he is not expecting anything major from the FOMC meeting this week. The central bank is still divided and members might be getting an itchy finger to pull the plug on the Fed’s easy money policy. According to Costa, the Federal Reserve does not want to change course at this time; the agency has its dual mandate of full employment and low interest rates. Chairman, Ben Bernanke recently commented that he does not see inflation as a risk at this time, so the doves will be accommodative to loose monetary policy and the hawks will insist on reining in low interest rates. The Federal Reserve's Beige Book’s recent reading showed that things are not that bad.

Employment Data

Last month’s employment data was a shocker said Costa. He could not believe how low the numbers were. The Labor Department reported that the March jobs data was 88,000. According to Costa, this is the rally that no one wants; there are not enough reasons for where the market is and the employment numbers are confirming his case. This is important as psychologically strength is good for the markets. He cannot predict the employment data at this time and does not believe it will come in line with expectations, but he would like to see the employment rate drop. Economists have tapered their April non-farm employment numbers because expectations from employers have been lowered.

First Quarter Earnings

Costa said 1st quarter earnings are surprisingly on the upside. He is forecasting that earnings will be in-line with expectations, which shows companies are making money, despite lowering expectations earlier in the year. He believes companies will hit their targets modestly which is a sign the economy is recovering. Multi-national companies will be impacted because of lower growth globally.

Final Word

According to Costa, we are moving into a summer of lower volumes that will foster a volatile trading environment. He went on to say that when there is no volume, the simplest headlines can move markets.