The Word from Main Street

Market Update - Week of May 18th, 2015:  

Reporting for the 2nd quarter is down to a trickle with most companies having reported earnings by now. The good news is that the results weren’t as bad as expected. Earnings grew at a rate of 0.1% versus an expected loss of -4.7%. Granted, these were ugly earnings at best, but more importantly, the results were a significant improvement from what had been expected. Overall, it was an 4.8% improvement. As noted by analyst Ivan Martchev, “earnings estimates were cut too aggressively at the beginning of the quarter so by the time most S&P 500 components reported, investors were relieved to see +0.1%.” However, at present time, slow revenue growth seems to be characteristic in the world’s major economies. Overseas, we see China cutting short term interest rates trying to stimulate an economy attempting to stay at, or above, 7% GDP, a far cry from their double digit growth of previous decades. Meanwhile, Europe has seriously gotten on the quantitative easing bandwagon as Mario Draghi has committed to the ECB's vast stimulus efforts for as long as it takes.

So analysts in the US, despite “improved earnings reports” for the 2nd quarter, still project low earnings growth and negative revenue growth for the remainder of 2015. Earnings growth is not expected to return until the 4th quarter of 2015 and revenue growth not until the 1st quarter 0f 2016. These weaknesses are reflective of deflationary environments, precisely what the Federal Reserve is trying to avoid. This is why a rate hike in the U.S., in this global deflationary environment, just doesn’t seem likely. Although the Federal Reserve has been threatening for some time to have at least a single increase in 2015, they are very afraid of upsetting the economic apple cart. The Feds fear that increasing short interest rates could reduce retail/corporate lending, stifle the tenuous recovery and send the economy into another recession.

While these events are certainly interesting and most evident to Main Street Wealth Advisor, we continue to emphasize our presence in U.S. stock as they still remain the best game in town until our leading indicators tell us otherwise.   

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