Simply matching earnings expectations, not surpassing them, has driven the Standard and Poors 500 Index up 15% in the second quarter, Fortune reports. But investors are forgetting that year-over-year increases are not hard to meet, since earnings have been beaten down for nearly three quarters. Most analysts are expecting earnings of 5.4% for the average S&P 500 company and a hefty 12.7% increase in the second.
With all of the bad news of the past, investors are quite desperate for good news and better returns, Fortune reports. They seem to be swallowing any evidence that the market is in for a sustained upswing. When the Commerce Department reported that May factory orders were slightly above the 0.4% increase that was expected, for instance, the Dow shot up 102 points.
Investors are in a deep state of denial, Morgan Stanley Chief Economist Stephen Roach told Fortune. The losses incurred over the past three years should have taught the public to be a bit more skeptical, but, sadly, this does not seem to be the case. He said the rally may only have staying power for one or two quarters.
But not everyone agrees with Roach, even Morgan Stanley strategist Byron Wien. With all of the Fed rate cuts, tax cuts and a weaker dollar, there is a great deal of room for an upswing, he said. "Theres a tremendous amount of fiscal and monetary stimulus out there. If the economy cant turn on all this, then Im willing to move to Mars," Wien said.
Whether one is bullish or bearish on the markets recent movement and earnings reports, Fortune concludes, one thing is for certain. If the market is to continue its upswing, then simply meeting earnings expectations will not be enough. There will have to be significant gains for the quarter and for the remainder of the year.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.