S markets are looking for a higher start on Friday with the S&P 500 expected to open above its record closing high of 2,121. Positive sentiment is supported by a recovery in bond markets and US economic data that suggests a Fed rate hike before September is unlikely.
With the Federal Reserve in data-dependant mode, having back-tracked from any forward guidance in their statements, each data point adds to or detracts from the story of a Fed rate hike this year. The unemployment rate continues to fall but inflation, retail sales, durable goods, manufacturing and service sector data is lacklustre.
Overall, the weak data as well as the dovish inclinations of Fed Chair Janet Yellen point to a cautious approach to hiking rates- which is supportive of stocks.
The hurdle stocks have had to overcome in the last six weeks is the first quarter reporting season. According to FactSet, earnings amongst S&P 500 companies are expected to be slightly positive on the year, growing by 0.1%. That is the slowest earnings growth since 2012 but it’s a big improvement over the decline of almost -5% expected at the end of March.
In short, as long as the Fed remains accommodative, earnings don’t appear to have slowed sufficiently to cause a serious correction to the bull market.
Today industrial production and University of Michigan consumer sentiment are expected to show improvement over the month.
Futures suggest the:
will open 3 points higher at 2,124 with the
expected to open 26 points higher/lower at 18,278 and the
13 points higher at 4,508.
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