History also is not on the side of a market rebound for the remainder of 2010. When the S&P 500 is negative for both January and the first half, it usually finishes lower for the year. Now, investment advisers are turning cautious and focusing on yield
A bad January often portends a poor full-year return, but when that bad start is compounded with a loss for the first six months, the odds get even worse for a positive 12-month return, according to research released Monday by Standard & Poor's.
Since 1900, when the market is negative for both January and the first half, full-year returns have been negative 77 percent of the time, with a median loss of 11.7 percent.
For a market grappling with high unemployment, sovereign debt worries and growing belief that economic growth will be considerably less than earlier estimates, the quest for a strong 2010 just got a little tougher.
With no such economic resurgence likely on the horizon, the odds are stacking against a full-year stock market gain.
We're having a major tug of war between the earnings and the economic data, and the economy seems to be far more sluggish than the earnings. That tells us the economy may be staggering some.
Indeed, if one were to look only at earnings the numbers so far have been stellar: Positive net surprises are at 76 percent, while positive revenue surprises are at 71 percent. But with investors looking more towards outlook, the strong second-quarter numbers haven't been enough to boost the market.
The reason why the earnings season isn't generating sustained optimism is because these are backward-looking numbers and the incoming data are flashing a serious loss of momentum as the second quarter drew to a close. What little we know thus far about the third quarter from much of the weekly indicators and regional manufacturing surveys strongly suggests that a further slowing in the pace of economic activity is in motion.
There are no easy solutions for investors in such an environment, particularly considering that the bond market appears to be pricing in a very slow recovery and sector losses are broad-based.
In an otherwise-rosy second-half outlook, Boston-based LPL Financial said the market would weigh a series of headwinds and tailwinds that would result in both volatility and churning in the major averages. At best, revenue will be mid- to single-digits area whereas earnings are up 40 percent plus, mainly because we’re seeing companies are doing a lot of cost-cutting.
The U.S. economy faces a period of “protracted sluggishness” as consumers are wary to spend. The U.S. is probably in the early stages of what is a very protracted sluggishness of domestic internal demand.
The U.S. economy grew at a 2.7 percent annual rate in the first quarter, less than previously calculated, reflecting a smaller gain in consumer spending and a bigger trade gap, data showed last month. Consumer confidence slumped in July to the lowest level in a year, signaling that the biggest part of the economy is losing momentum, according to the Thomson Reuters/University of Michigan preliminary index of consumer sentiment published on July 16.
The U.S. housing market took another step back in June as construction and purchases dropped, and a gauge of the outlook for growth signaled the expansion will lose steam, economists said before data due to be published later this week. Housing’s inability to maintain a rebound is one reason the economic recovery is not gaining speed.
President Barack Obama said on July 15 that his economic-stimulus program is gradually pulling the U.S. out of its deepest recession in decades. Republicans have said the stimulus is wasteful, hasn’t reduced unemployment and has added to the record budget deficit.
The president is walking a fine line between stimulus and budget cuts. What the markets are ultimately going to want is far more specificity and credibility on deficit reduction and normalization of Fed policy. Federal Reserve policy makers last month restated a pledge to keep the benchmark lending rate at around zero for “an extended period.”
Meanwhile, Morgan Stanley cut its full-year economic growth forecast for China by about 1 percentage point to around 10 percent. Roach expects economic growth will hold at around 10 percent over the next couple of years. Per capita gross domestic product in China is still a real laggard. It will take China at least 50 years before China’s gross domestic product per capita catches up to “anything close” to that of the developed world.
A surge in imports and slower consumer spending reduced U.S. economic growth in the second quarter, according to economists at Goldman Sachs Group Inc.
The world’s largest economy grew at a 2 percent annual pace from April through June, down from a previously estimated 3 percent pace, according to revised estimates by Goldman economists. Forecasts for the second half of the year remained at an average 1.5 percent pending the government’s annual revisions to gross domestic product due July 30.
At that point, we may need to make downward revisions, judging from the relentless run on disappointments in recent weeks. While it is conceivable that the slowdown will prove fleeting, several factors strongly suggest otherwise.
Among the issues that will damp growth in the second half are the loss of support from fiscal stimulus and inventory replenishment, the excess supply of vacant housing, state and local budget constraints, a lack of credit, and weak employment gains.
~~ from CNBC and Bloomberg
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