The Chicago PMI and consumer-confidence index for April are due on Tuesday, and the Institute for Supply Management’s manufacturing data will be released on Wednesday.
Also on Wednesday, the Federal Open Market Committee will announce its monetary-policy decision, and on Thursday, the European Central Bank’s Governing Council meets and issues a policy decision.
Rounding out the week, Friday will see the release of the April report on nonfarm payrolls and the ISM services gauge, along with March factor-orders data.
The FOMC and ECB meetings will be a big focus, said Luschini. Markets are expecting some sort of easing measures from ECB President Mario Draghi, and stocks will be pressured if nothing comes out of the meeting.
So far, more than half the S&P 500 companies have reported quarterly results, with 73% of those companies reporting earnings above the Wall Street consensus, while only 44% have reported revenue above consensus, according to John Butters, senior earnings analyst at FactSet. While that earnings beat percentage is average when you go back four years, the average percentage for beating revenue is 57%. Still, with the results that are in, the S&P 500 is on track for year-over-year earnings growth of 2.1%, with revenue declining by 0.6%, according to FactSet.
And the low expectations game is still alive: of the 59 companies that have issued earnings guidance so far, 48 of them, or 81%, have provided an outlook that falls below the Wall Street estimate, said Butters. The five-year average is 61%.
And the low expectations game is still alive: of the 59 companies that have issued earnings guidance so far, 48 of them, or 81%, have provided an outlook that falls below the Wall Street estimate, said Butters. The five-year average is 61%.
So far investors have allowed themselves to be lulled into accepting the corporate game of “under-promise and over-deliver,” and investors have had a hand in enabling companies to do it, said Brian Belski, chief investment strategist at BMO Capital Markets.
“That’s been going on for a while,” Belski said. He said markets, which are a little bit ahead of themselves, are “overdue for a respite.”
What will bust the market out of the “sell in May and go away” cycle this year is definitive action out of Washington, he said.
On May 18, the debt ceiling will once again become an issue after its temporary suspension expires. Washington can use that opportunity to start cutting costs aggressively and get serious about tax reform to create new revenue, said Belski. Those actions would not only sustain the rally in stocks, they would also alleviate anxieties over the deficit and future debt downgrades, he said.
“Tax reform would be very bullish, then you’d have the government deleveraging just like corporate America has done over the past 10 years,” Belski said.
Earnings on tap
While they’ll have a more diminished influence over markets, more than 130 companies in the S&P 500 will be reporting results this week.
Notable companies reporting include Aetna Inc. AET +0.23% , Pfizer Inc. PFE -0.56% , Time Warner Inc. TWX +0.47% , CVS Caremark Corp. CVS -0.36% , Comcast Corp.CMCSA +1.52% , Merck & Co. MRK +1.10% , CBS Corp. CBS +0.65% , MasterCard Inc.MA +0.04% , Viacom Inc. VIA -0.71% , Visa Inc. V -0.91% , MetLife Inc. MET -0.98% and American International Group Inc. AIG -3.33% .
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