Dollars and Sense: Market drift and job growth anticipation

All quiet on the earnings front. We’re now a couple of weeks into earnings season, and so far things seem pretty quiet. In fact, I can’t resist pointing out that last Thursday the Dow Jones Industrial Average closed unchanged for the day. And by “unchanged,” I mean that it closed exactly, to the penny, where it opened, at 16,501.65. That is both extraordinarily rare, and is something of a metaphor for the market this year. The Dow closed the week less than 100 points away from where it started the year. That’s not to say that we haven’t had a fair amount of volatility. The Dow dropped about 140 points on Friday, and we’ve seen a number of 100-point days lately, but—as we’ve said here before—when the Dow is at 16,000, a 100-point day is a relatively small-percentage move. We’ll likely continue to see more of them—and have to come up with a new benchmark of volatility—if the markets continue to rise.

Drilling down. This week, we got earnings reports from 155 of the S&P 500 companies. About 62 percent of them topped expectations, which is almost exactly the long-term average of 63 percent. Among name brands that topped expectations were McDonald’s, Netflix, Kimberly Clark, Facebook, Texas Instruments, Caterpillar, and Apple. The list goes on. Those are all reasons that Tuesday was the sixth day in a row the S&P 500 went up. That was its longest winning streak since last October.

Mixed economic news. Economic news last week was mixed, though still generally positive. The Commerce Department said new home sales fell 14.5 percent in March, the worst sales month since July. Existing-home sales were essentially unchanged last month, coming in at a seasonally adjusted annual basis of 4.59 million. That was disappointing because analysts had been hoping for a rebound from a pretty dismal, weather-affected first quarter. That said, most of the other reports this week were generally positive. A survey of U.S. purchasing managers came in at 55.4 for April, slightly below projections of 56, but any number above 50 indicates growth in the sector. The Conference Board said its index of leading indicators increased 0.8 percent in March.

Overseas tensions. Positive earnings and economic news was mitigated last week by concerns of escalating tension between Russia and Ukraine. Worries about Ukraine first hit European markets—and then rippled to the U.S. markets—when reports said Russia had begun military drills near the Ukrainian border.

The week ahead. Earnings season continues, of course. By the end of the week, we’ll have the vast majority of reports, so we’ll be able to get a good idea of how the first quarter actually went on Wall Street. The Fed will meet this week, and will issue a statement with some guidance as to its actions. Most analysts expect the Fed to trim its bond-buying scheme another $10 billion a month. This is the last week of April, and we’ll get another monthly unemployment report on Friday. In recent years, that report is the biggest of the month. If jobs come in where J.P. Morgan economist Bruce Kasman suggests—220,000 new jobs in March and an unemployment rate of 6.6 percent—that would be a modest improvement over the past and the markets likely would consider that a good sign.