US stocks are on a tear as optimism about corporate earnings and economic data has driven the market higher each day this week. But while there’s much to applaud from this week’s performance, it’s still too early to say the recession’s over and economic growth is imminent.
The stock market’s bounce off the March lows just doesn’t have that bull market feel to it, former Merrill Lynch chief investment strategist Richard Bernstein says, in part because the prior bull market leaders - financials and energy - are leading the recent surge. He notes rallies aren’t usually led by the prior bull market’s leadership, but that seems to be what’s happening now.
“No one seems the least bit aware that leadership always changes during bear markets, but it hasn’t changed during the recent market upturn,” he says. “Either this cycle is going to be extremely unique and break a solid historical pattern, or this isn’t the bull market that many believe.”
Earnings continue to surprise to the upside but 2Q revenue has been more of a mixed bag, notes Miller Tabak equity strategist Peter Boockvar. “It’s a tribute to corporate America’s ability to keep a lid on costs and improve margins but also highlights the tough economic environment,” he says.
And as good as bank earnings have been this week, much of the upside has come from one-time events that won’t necessarily be repeated or have the same impact in the 2H, Barron’s Bob O’Brien says. “The latest readings on bank profits proved emphatically that, while some things have improved, investors might come to regret their ebullient responses to the headlines when they see third- and even fourth-quarter returns in October and January,” he notes.
The economic data released this week give optimists ammunition that the recession may be coming to an end, but a return to actual economic growth remains far away, James Picerno writes at The Capital Spectator.
“The darker outlook is that all the good news of late turns out to be statistical noise in an ongoing recession that continues to destroy wealth and keep the forces of stabilization at bay,” he says.
Ultimately this week’s data are encouraging, but “we’ll need additional confirmation of the trend in the months ahead before we break out the champagne,” he says.
Dow industrials, up 25 at 8737 in mid-afternoon trading, have gained 7% this week.
