Market Update

The first quarter earnings reports are coming out in full swing, and as was the case for the last several quarters, they are strong.  So far, 75% of companies beat earnings forecasts, and only 14% missed them.  69% of all companies beat revenue forecasts.  The earnings were especially strong for high-tech companies, and these results propelled Nasdaq above its 2007 levels; it is now at 10-year high (but still more than 40% below its peak in 2000).  S&P 500 remains about 15% below it is 2007 pre-recession peak.

The U.S. dollar, meanwhile, is getting crushed.  I know, I just returned from a vacation in Italy.  A week ago, Standards & Poor issued a “negative” outlook on the U.S. credit rating, while keeping the AAA rating itself unchanged.  That didn’t help the dollar at all.  The clear beneficiaries of this are commodities which are priced in dollars, and multi-national companies whose dollar-denominated revenues increase as dollar weakens.  As I have such companies in my portfolio, I am not complaining — I am getting some help here to pay for that $8 cappuccino.

The most recent economic reports were moderately negative.  U.S. GDP growth was revised down to 1.8%, new jobless claims exceeded 400,000 for the second week, and home prices are dropping again, prompting more talk of a “double-dip” in the housing market.  I will of course be watching the forthcoming reports, but so far, I don’t see a big reason to worry — no economic recovery proceeds in a straight-line fashion, and setbacks are normal.

These temporary weakness in economic conditions and the fact that it is almost May makes many Wall Street observes to wonder whether they should “sell in May and go away”.  Indeed this “strategy” worked well last year: S&P 500 lost about 15% from May to July.  I am not a scholar of calendar anomalies, however.  In the end, stock prices are driven only by the earnings, and they have been consistently good.