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Pre-Open Sentiment Indicates A Positive Open

The major indexes have been see-sawing this week, with not much to show for all that movement. Pre-open sentiment indicates a positive open for today’s session, with stability in the currency markets and momentum in oil prices driving the gains. But don’t try too hard to find the driver(s) of these day-to-day moves; they are very hard to pin down.
 
The market’s lack of recent direction after strong gains from February, which came after sudden weakness at the start of the year, is a function of ‘macro uncertainty.’ I am using this term to explain the state of the global economy, the U.S. Fed, the U.S. economy and the sub-par corporate earnings picture.
 
Gains since the February lows largely reflect the change in the Fed’s earlier policy guidance – they went back on their stance that accompanied the December 2015 rate hike when they saw all-around weakness in the market. It is no surprise that the Fed is this mindful of the market’s reaction – this is how the Fed has behaved for almost two decades now. The Fed Chair and other key FOMC members have now brought themselves in-line with the market’s view, but theirs isn’t the only view on the committee, and the cacophony of Fed voices is adding to market uncertainty.
 
The economic picture is no less uncertain, with the Atlanta Fed’s real-time GDP tracker now putting the U.S. economy’s Q1 GDP growth at barely in positive territory. Many in the market see Q1 weakness as nothing than a result of seasonality factors that will give way to ‘normal’ growth in the current and coming quarters. Recent improving numbers from the factory sector and continued momentum in the labor market confirm this favorable view of the U.S. economy.
 
The Q1 weakness in the U.S. economy may have been driven by temporary or seasonality factors, but the forces weighing on the corporate earnings picture appear to be more enduring. The last few earnings reporting cycles were very weak, and the Q1 reporting cycle that takes the spotlight with next week’s earnings reports from Alcoa (AA) and the major banks like J.P. Morgan (JPM) and Bank of America (BAC) is on track to be no better.
 
As is the case with the economy, the challenge remains on the growth side, with estimates for Q1 as well as Q2 still going down. It is hard to see sentiment changing in any meaningful way without any improvement in the earnings outlook.

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