Posted by Bob O’Brien
Earnings season continued its rehabilitative efforts successfully enough to keep alive some measure of enthusiasm for the recent rally – or at least keep fears sufficiently at bay – to allow the market to stretch its advance into a sixth consecutive week.
Citigroup (C)manifested the change in tenor about as well as any of the multiple financial institutions that reported this week, as it posted its first quarterly profit since the fourth frame of 2007, and validated the recovery expectations of the investors who pushed the stock some 400% higher from the depths of the early-March selloff, when shares could be had for the price of a bottle of Coke.
General Electric (GE) likewise gave a profit accounting that hinted that, while further challenges exist, the worst of its obstacles had been cleared – having cut its dividend and seen its credit rating toppled from the highest rank already this year – as profits came in ahead of forecasts.
The fundamental performances of companies reporting gave Wall Street enough of a tailwind to propel equity prices higher, despite some overbought conditions. The average stock in the Standard & Poor’s 500 (GSPC) is about 10% above its 50-day moving average, a key technical consideration for stock-market chart mavens; double-digit advances above those moving averages typically spark concerns that shares have become overbought.
Meanwhile, while the average rally off a bear-market low generally runs out after about 37 trading days, according to JPMorgan research, the current rally has gone on for some 39 sessions – another technical consideration.
Nevertheless, the market managed to record enough of a gain to ensure its sixth consecutive weekly advance, after the S&P rose about 1% in Friday’s trading. The index has moved more than 28% off the March 9 lows that represented, at least for now, the bottom of the bear-market cycle.
Some challenges await next week, when earnings season heads into high gear. While investors could have said they found themselves surprised by the alacrity with which corporate America has bested first-quarter targets – on average, three out of four financial companies have beaten estimates – they won’t be quite as surprised by upbeat bottom-line surprises in the coming weeks. There’s worries that a ‘’sell on the news” sort of initiative could grip the market.