Weighing the Week Ahead: What is the Message of the Market?

We have a quiet week for data. The ObamaCare drama is finished for now. The Fed meeting is over. Earnings season is past the peak. Don’t worry! The punditry will find something new. Analysts will look deeply into the charts and ask:

What is the message of the market?

Last Week

Last week the economic news was good, but mostly ignored.

Theme Recap

In my last full WTWA (two weeks ago) I predicted efforts to find some new worries. The old set seemed to be running out. There was a fair amount of discussion on this theme, although nothing really dominated. In some ways, it set up the topic for the week ahead. The reception to the abbreviated WTWA last week was great. Thanks to those who read and commented (especially at Seeking Alpha). This makes the articles more valuable for everyone, including me! I’ll continue this plan on other occasions when I have a weekend off.

The Story in One Chart

I always start my personal review of the week by looking at this great chart from Doug Short via Jill Mislinski. She notes the strong Friday trading, leading to a new all-time high.

Doug has a special knack for pulling together all the relevant information. His charts save more than a thousand words! Read the entire post for several more charts providing long-term perspective, including the size and frequency of drawdowns.

The News

Each week I break down events into good and bad. Often there is an “ugly” and on rare occasion something very positive. My working definition of “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!

Once again, the economic news last week was good. The market got a little boost.

The Good

  • Railroad traffic increased again up 8.4% year-over year (Calculated Risk).
  • Corporate earnings have been strong on all fronts: improvement over last year, beating expectations on earnings, and beating expectations on revenues. FactSet details this important story for investors, illustrated by the chart below. Brian Gilmartin emphasizes how this has affected forward estimates and the expectations for stocks.

  • Company comments have been solid. Avondale does a first-rate job of identifying and reporting trends in conference calls. Look for yourself, but it seems to support the modest growth that we see in economic indicators and earnings. There is special strength in industrial sectors.
  • High-frequency indicators are positive. New Deal Democrat’s excellent weekly post monitors data you would otherwise miss. It is a valuable addition to the major reports.
  • Tax revenues are surging. Jed Graham (IBD) has the story.