So now the March rally is back on track, what’s next: more boom or another tremor?
Well, the reporting seasons in the US, Europe and Australia will offer plenty of opportunities for more rises, and the possibility of sharp falls on unexpected poor results or announcements.
But while most western markets have now only recovered 2009 highs, or hit new highs since late 2008, the rebound in emerging markets continues to be awe inspiringly bubblish.
China’s market ended at a new 13 month high Friday, up 82% this year so far.
In contrast developed country markets have risen by between one third and 50% since the multi-year lows reached in March.
The Dow Jones Industrials index broke through the 9,000 point mark last week for the first time since January; London’s FTSE 100 has risen 10 days in a row – the longest since 2003 (although the economy is contracting at its fastest rate in 60 years).
And the mechanics of America’s current surge is based on better-than-expected profits, thanks to cost cutting and job hacking, not higher sales.
In fact Bloomberg has pointed out that sales growth is badly lagging in the quarterly reports so far.
Bloomberg says this could be a signal that the economic recovery may be slower than the market thinks.
The first report on US second quarter growth is out Friday and most economists say it will be around minus 1.5%, much better than the 5.5% contraction in the March quarter.
Bloomberg pointed to sharp revenue falls in the second quarter for companies such as Caterpillar, Freeport, Microsoft, UPS, Amazon, United Technologies, and the week before, GE, as examples of where weak sales were ignored by many investors.
"Revenue at 143 companies in the S&P 500 reporting last week, many of them bellwethers for the American economy, fell on average 10 percent from a year ago, according to Bloomberg data.
"Seventy managed to top the analysts’ consensus for sales, while 107 did so for earnings per share," Bloomberg said.
Thomson Reuters reported that of the 500 companies on the S&P, 181 issues, or 36%, have reported quarterly results, which were off 26% from the year-ago quarter vs. consensus estimates calling for a slide of 36%.
The bottom line is that while analysts are liking what they see now (because many had no idea of what was happening in the economy and set their forecasts too low)
But the question remains: where’s the future growth and where are earnings going to come from when consumers won’t be spending, nor will businesses whose investment plans have all been slashed to boost profits.
The optimism about the better-than-forecast profits (which in nearly all cases are down sharply from a year ago) remains at variance with the reality of the outlook, even if the US economy is recovering.
Not only was the Dow back above the 9,000 mark last week, but the Standard and Poor’s 500 Index ended Friday up almost 45% from the 12-year closing low hit on March 9.
Both indexes ended Friday at eight-month closing highs.
The Dow added 23.95 points, or 0.26%, to 9093.24. For the week the index rose 3.99%, its best two-week performance since March 2000.
Nasdaq lost 0.39% Friday, to 1965.96, its first fall in 13 sessions. For the week, the index rose 4.2%.
The S&P 500 added 2.97, or 0.30%, to 979.26 and finished 4.1% higher over the week. For the week the index rose 4.1%.
But consumer confidence was off in July, according to a survey last Friday, with a second sentiment survey out this week.
It’s likely to be negative, despite the rise in the markets. If that’s the case, the overbought situation in US markets will be stretched that much more.
In Asia markets rose for a second week, sending the MSCI Asia Pacific Index to its biggest rise since May.
It made up for the smaller rise the week before, compared with other regions.
The MSCI Asia Pacific Index rose 4.5% last week to 108.00 this week, the biggest advance since the period ended May 8.
The MSCI World Index rose 4.5% for the week. The week before Asia was well behind the advance in world markets.
Helping was the relatively good flow of information from the US and Europe, with South Korea Friday confirming the biggest rise in growth in more than five years in the second quarter.
The Nikkei rose 1.6% on Friday, for its biggest winning streak since November 2005.
The Nikkei ended up 5.9% in a holiday-shortened week, the steepest gain since March. The Nikkei 225 is now up almost 10% in the past eight days.
In Australia the market ended up Friday for a second week of gains.
The ASX200 was up 22.5 points, or 0.6%, at 4086.6, it’s highest since November 10.
For the week the index rose 2.2%.
The All Ordinaries rose or 0.6% to 4097.3 and was up 2.6%.
The Dow Jones Stoxx 600 Index in Europe rose 4.3% to 219.67. The index has rallied 11% since July 10.
Indexes rose in all 18 western European markets, except Iceland. London’s FTSE 100 climbed 4.3%, Germany’s DAX 5% and France’s CAC 40 was up 4.6%.
