Stocks Rally During Heart Of Earnings Season
Stocks rallied last week as investors digested the latest round of largely lackluster economic and earnings data. The big winners (so far) from earnings season include: Amazon.com ($AMZN), Netflix ($NFLX), Hasbro ($HAS), Domino’s Pizza ($DPZ), Sketchers ($SKX), Dunkin (Donuts) Brands Group ($DNKN), Google Inc ($GOOG), Microsoft Corp ($MSFT), O’Reilly Automotive ($ORLY), and YUM Brands ($YUM). On the downside: Texas Instruments ($TXN), Travelers ($TRV), 3M ($MMM), Chipotle ($CMG), Pulte Group ($PHM), Biogen Inc ($BIIB), and American Express ($AXP), just to name a few. We mention this because history shows us that some of the market’s strongest performers occur from big gaps up on earnings and some of the weakest stocks gap down after reporting numbers. Separately, it is important to note that so far, the major averages continue to grind higher which suggests the bulls still remain in control – for now.
Monday-Wednesday’s Action: Earnings Continue To Be Released
Stocks rallied sharply on Monday after China took more steps to stimulate their economy. Over the weekend, China’s Central Bank, The People’s Bank of China, lowered the reserve requirement ratio for banks to 18.5% from 19.5%. The 100 basis point cut was the largest move since November 2008 and is intended to stimulate their economy. The move came one trading day after China raise margin requirements for traders and allowed short selling in their equity market. Stocks sold off hard on the prior Friday but bounced back on Monday after more interference from global central banks. Hasbro ($HAS) gapped up after reporting Q1 results.
Thursday-Friday’s Action: Nasdaq Hits 2000 Closing High
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. This has been our primary thesis since the end of 2012. We would be remiss not to note that this very strong bull market is aging (celebrated its 6th anniversary in March 2015) and the last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007). To be clear, the central bank put is very strong and until material damage occurs, the stock market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.