Financially, the economy is in good shape:
The earnings picture is improving — but remember that word is clearly relative (emphasis added):
The expectation is for total S&P 500 earnings to decline -22.8% from the same period last year on -2.9% lower revenues. This would follow the -32.3% decline in Q2 when economic and business activities came to a halt as a result of the pandemic-driven lockdowns.
The earnings outlook has been steadily improving since the start of Q3, as economic and business activities have resumed. While the latest labor market and factory sector readings suggest some deceleration in the recovery, the recovery is nevertheless in place which should sustain the improving earnings trend.
This means there is a growing possibility of upside earnings surprises along with analysts combing through earnings calls looking for positive commentary.
Let’s take a survey of the positive data:
The one very negative statistic is the 4-week initial average of unemployment claims:
The labor market is the one sticking point. The labor force participation rate and the employment/population ratio are about half their respective pre-lockdown levels. Jobs growth appears to be weakening:
Conclusion: the data is moving in an expansionary direction. The Fed has calmed the credit markets while also providing ample liquidity for expansion. There is a possibility for positive surprises during the upcoming earnings season. The leading indicators have turned the corner as has most coincidental data.
Let’s turn to this week’s performance tables:
I’m going to do most of the heavy analytical lifting in my weekend ETF review column. However, the markets are clearly moving in the right direction.
IWM 3 Month
Small-caps have broken through resistance and are at a 3-month high.
QQQ has bounced off its shorter moving averages and is trending higher, as is …
Overall, this is a good place to leave off for the weekend.
So — have a good weekend, keep an eye out for the longer weekend review and I’ll see you on Monday.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.