Week In Brief: May 13

May 16, 2016

The S&P 500 began the week strong. Only to fade midweek and thereafter. Ending up roughly one percent below where the week began.
As Q1 earnings season concludes, the data reveals a negative earnings period that, despite 71 percent of companies having beaten earnings expectations, leaves much to be desired.
Q1 represented the fourth consecutive quarterly decline in aggregate earnings. While 71 percent of companies beat EPS targets, many did so on the wings of lowered expectations. Revenues were lower. As were the number of companies beating sales expectations.
Still, there is always yin and yang. The good with the bad. 
Autos and internet sales showed strength. And as many companies cited the strong dollar as a source of weakness, the dollar's recent weakness could be a boon as soon as Q2. Moreover, due to the mixed messages, the market was a bit more forgiving than usual. As companies reporting weak results were not punished to historical standards.
But the lack of economic strength continues to burden the bulls. As the data reveals an economy incapable of lifting the middle class out of its malaise.
The stock market, ever perceptive, has noticed.
Since November 2014, the S&P 500 has logged a million miles yet gained no ground. The market -- perhaps sensing the economy's lack of virility -- has gone up and down. But accomplished nothing. Following 2014's September-to-October Ebola scare, the markets recovered into November and have gone nowhere since. Having simply consolidated for a year and a half. With neither bulls nor bears mustering a case forceful enough to break the logjam.
All of which, counter intuitively, should be heartening. And in retrospect, makes complete sense.
The economy remains anemic. The presidential nomination process a fiasco. Corporate earnings have stalled. Tech and biotech innovation has disappeared. And stock market sentiment has been soft. Yet, with credit firm and commodity prices in recovery, it is reasonable to believe that this prolonged flat stretch will resolve itself to the upside. Why? Not certain, exactly. We only know that bears have had every excuse, opportunity and evidential artifact at their disposal and still they've failed to drag markets lower. Meaning, once this consolidation period runs its course? Stocks will likely head for higher highs. Perhaps after the election. Perhaps before.
Either way, stocks have frenetically held their ground for a reason. All good things to those who wait.
Donald Trump and Paul Ryan met last Thursday. With any luck, the conversation focused on the only thing that currently matters. That being the restoration U.S. economic growth. Both men understand that seven years of zero to 2% growth is killing the American public. A point that will, unfortunately, be noted as historians chart the legacy of President Obama's two terms.
Most of the issues plaguing the nation are more symptom than disease. None of which will ever be purged until a rising economic tide lifts all boats.
Though Ryan and Trump differ on such matters as trade and immigration, both realize that the nation's woeful economic trajectory renders immaterial any serious discussion of these and other issues. Ryan knows that Trump's appeal to the American middle class is about more than a forceful outsider's approach to politics.
For anecdotal insight into Main Street's plight, as well as their support of Trump, consider the loss of consumer confidence since 2000.
A recent study by Bespoke Investment Group reveals that the drop in consumer confidence has been markedly larger among families making less than $50K per year. Primarily because these households have seen zero wage growth since the dotcom bust. Though costs of daily living have continued to rise. Unlike higher paid, $50K-plus households, this lower-income swath of the electorate feels it has been left behind. And it has. Accordingly, until their ships are back on a respectable trajectory, they'll continue to support anything but the status quo.
In D.C., President Obama's signature healthcare legislation was dealt a significant blow last week when a U.S. District Judge ruled that the legislation's provision to provide subsidies for low-income consumers without Congressional assent was potentially illegal. The non-partisan Congressional Budget Office reports that the subsidies will likely cost taxpayers about $130 billion between 2017 and 2026. If upheld, the decision could radically alter the health care law.
Now, the unintended juxtaposition of free speech and hypocrisy.
Two Iranian cultural organizations have announced the formulation of a 2016 Holocaust Cartoon Contest. While the Iranian government has distanced itself from the event, that hasn't prevented multiple government agencies from supporting it. Whereas political cartoonists were attacked and killed in Paris and Belgium for depictions of the prophet Muhammad, the free world will only look on icily as the Iranians have their day. One that satirizes an event that took six million innocent lives.
That so-called Iranian peace agreement? Becoming less palatable by the week.
Weekly Results
Major markets finished down last week. The DJIA lost -1.16%, while the S&P 500 fell -0.51%, and the NASDAQ fell -0.39%. Small cap stocks dropped -1.10%. The 10-year Treasury bond yield fell 7 basis points to 1.70%. Gold finished down $14.83 per ounce, or 0.73% last week.

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