Quiet Markets and Modest Gains

As the markets neared the end of May and the Memorial Day weekend, trading was light in sync with a slow period for economic news or important data. The conclusion of the quarterly corporate earnings announcement period – with 488 companies of the Standard & Poor’s 500 having reported earnings prior to the three-day holiday weekend – did nothing to spark significant market activity either. It looks as if first quarter earnings for 2015 will increase 0.3 percent over last year’s numbers, providing us with a positive but very modest rate of growth.

Here are some of the highlights from market news during the past month.

• Results for the first quarter are lackluster, with the U.S. economy only just remaining in positive mode for this period. Large cap stocks continue to be hobbled by lower overseas profits, hurt by the rise in the dollar’s exchange value on exports. On the other hand, analysts also noted that while earnings growth for the first quarter was muted, it had still managed to beat earlier forecasts of a 12-month decline. It’s too early to predict earnings performance for the second quarter of 2015, although initial estimates suggest it won’t be much different from the first quarter.
• The Federal Reserve’s timetable for increasing interest rates remains undetermined. Given first- quarter leading economic indicators and comments from Fed officials, most economists don’t expect any change in the first half of this year. Some believe September might be the date for a rate hike, but many think September looks increasingly less likely if the economy continues on its current path. The major factors inhibiting economic growth are the previously mentioned currency exchange rates, which are hurting the U.S. export sector; the overall impact of lower oil prices within the energy sector; and the slowdown in investment and capital spending created by falling oil prices. Financial analysts don’t know what goals or economic growth benchmarks must be met before the Fed increases interest rates, so speculation continues to swirl around the Fed’s policies.
• Slowing increases in corporate earnings and relatively high prices for stocks suggest that individual investors might see lower returns in the United States. However, stock market analysts are quick to point out that U.S. companies’ balance sheets remain strong and overall profit margins are sound.
• Data shows that consumer prices are increasing faster than expected – with a 0.3 percent increase in prices (excluding food and fuel costs) in April. Inflation does not appear to be a concern for economists at this juncture, although it should be noted that inflation rates are getting closer to the Fed’s 2 percent target.
• On the positive side, housing starts from March to April reached the highest level in seven years and unemployment continues to decline.

The commentary above is intended as a general observation only. It is not designed to be a substitute for advice from professional tax and investment counsellors.

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