With the second half in the rear view mirror there is so much to look forward to as we attack the rest of 2011. I certainly hope we have less chills and thrills in the back half of the year – maybe just a bit off settling down with a bit more stability. So as we get ready for that rollercoaster ride called earnings season we’ll have to buckle up tight and be ready for what the market has in store.
Sentiment continues to be skewed to the bullish side but ever so slightly. Emotions are running high and traders seem to have one hand on the door just in case. That kind of worry is rather healthy – we call it the ‘wall of worry’, and the bigger worries the better chance to be contrarian and make the easy money. It’s never really ‘easy’, yet the public usually has it wrong – and going against has traditionally been a good bet.
After a very shaky and difficult month of June it’s time for some goodness. Perhaps the annual summer rally will get kick-started with earnings season. With markets near highs for the year but uncertainty still strong we may only see the current leadership continue higher. Of course, broadening out would be the best result, but we’ll take what we can get. The financials have been in the tank for months, and many say markets cannot rally without financials. At some point they become cheap enough for institutions to start buying. Energy, commodities, retail, restaurants, rails/transports and technology have been some of the better movers during the first half. Most corrected some 10-20% and have roared back since late June. It’s these groups that will likely report the best earnings.
About 20% of the SPX 500 will report in the coming week including IBM, AAPL and INTC. Ironically, this was the lightest warning season that we have seen in quite some time, tells me there could be more upside surprises than expected. If we do see that consistently this market will not look back as money will be flowing in droves. With bond rates so low there is not much value in buying treasuries, where yields have become quite low and unattractive. Google is a great example, rising more than 12% the day following earnings – 10 yr treasuries yield under 3%. Take your pick!
