The mood in the stock markets is constructive and today's report, showing that inflation remains benign, is helping to take away some fears of further aggressive rate rises.
Subodh Kumar
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The market is now factoring in that first-quarter earnings will likely be below consensus. And the reality is that economic growth is probably going to be between 3.5 percent and 4 percent, which is good but maybe not as strong as what some people were hoping for.
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This is more a readjusting of expectations as opposed to a readjusting of the economy.
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The expectation for earnings growth to slow down is pretty widespread on Wall Street.
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We expect better performance in the second half to follow a lackluster first half, with more uplifting assessment in the markets of issues like inflation, Fed policy, politics and earnings.
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For the market to head higher, investors need to have confidence that oil prices will stabilize and move below 0 a barrel. If oil stays at current levels, the market will be tentative at best.
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I think momentum is going to slow down, but I don't think markets are going to be as defensive as they were in the first quarter. There is room for the market to recover.
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Usually, the groups under stress bounce the most at a bottom since they would benefit the most when the economy improves
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In the very short term, you are seeing a response to the economic news, and that can give the market some buoyancy. Whereas in September and October, the above-consensus earnings enabled the market to perform better than it traditionally has, in November the focus switches to the economy.
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Over the next year, markets will be higher, but in November and December we may be in something of a trading range. Markets have already incorporated the improved earnings, and to an extent, the economic improvements.
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