Last week we had a few high profile earnings reports from financial companies which helped to drive the markets higher for the sixth straight week. This week promises to be a little more interesting as an onslaught of companies from most industries will announce their earnings or losses. The first quarter is over so the important news is what will happen in the next few quarters.
Stocks reflect improved economic reports but will earnings forecasts be bullish enough to carry them higher? Trends don't seem to be as bad as they have been only a few months ago but slim inventories may have accounted for some increased production and lower mortgage rates are spurring increased housing activity. However, the financial crisis is still in progress and most large banking institutions are not able to raise sufficient capital from private investors to separate themselves from the government's clutches.
Stocks came down fast and they have rallied sharply. The bulls now are fighting the bears and we are clearly in the camp of expecting a big pull back in stocks. Spring is here and nicer weather coupled with higher stock prices have drawn more investors to feel like things are getting better. We certainly are happier with higher stock prices but have been selling stocks into the rally while increasing some shorts. We hope the rally continues but there are many risks ahead and we suggest caution is the way to go.
Perhaps we will see more positive economic signs in the next few weeks but by summer the malaise may resume. The truth will be told this week from cyclical companies like USG, Terex, Arkansas Best, Temple Inland, and Ford. We care less about what happened from January to March as we do about what will happen from May to December. Read the tea leaves next week and control the exuberance.
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