The economy as a whole has been doing well, but well enough to push the S&P 500 to an all-time high?
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The S&P 500 reached 2125.92 earlier this morning, eclipsing its former closing record of 2117.69 on April 24.
Many believe the climb to all-time highs for these indexes has been attributable to strong earnings from the tech sector. For instance, Microsoft (MSFT) surpassed analysts' estimates for both earnings and revenues, Amazon (AMZN) reported a 14%+ gain following its earnings release and Google (GOOGL) even traded higher although it missed analysts forecasts.
“Earnings are certainly driving us… 72% in the S&P 500 have beaten so far, historically, the number hovers around 66% or 67%, Howard Silverblatt, senior index analyst for S&P Indices said.
Apparently, there was an acceptance that Q1 was not great, but definitely survivable,” notes Silverblatt. “Sales actually declined 1% for the first quarter year-over-year, but were up 3% when excluding energy.”
He noted that the U.S. is pulling everyone up, “we would be down 6% globally, excluding U.S."
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Others have a bit of a different take.
“We see the climb in stock prices over the past month as reflecting an oil price recovery that has capped damage to the petro-sector, ongoing tensions with Greece that are driving capital to the U.S. markets," notes Mike Englund, Principal Director and Chief Economist at Action Economics who also does not anticipate any change to interest rates at the Fed's meeting this week.
Adam Parker, Chief US Equity Strategist for Morgan Stanley is bullish on stocks.
He expects a 2014 economic replay. “We think the economy in the U.S. will accelerate in the 2nd and 3rd quarters as a number of temporary and tactical issues that impacted Q1 abate," notes Parker. He also thinks the bottom-up consensus earnings expectations are too low, and he doesn’t see sentiment on U.S. equities as ebullient.
Parker believes “sentiment about other equity regions is clearly more positive than for the U.S., that’s a good setup for meaningful appreciation.”
“Our long-term thesis has been that we are in the middle of the longest expansion ever. Economic factors, management hubris, and credit metrics all need to materially change to bring the expansion to a peak, cites Parker.
Silverblatt said 2Q earnings results are expected to gain 7%-8 % over 1Q, with 2Q potentially back to a record, although retail results are not out yet.
He concluded: “After a deeper look, if 2015 is a low single-digit gain for the S&P 500, and the economy continues, a 14% rise in 2016 is feasible."
The markets could also get an additional boost after the close today as tech giant Apple (AAPL) reports.
Another big event for the week is the Fed's two-day meeting, but Fed watchers are not really looking for any major changes.