Growth Worries Replace Debt Fear - Analyst Blog
August 02 2011 - 4:49AM
Zacks
It is amazing to see how fast the markets have started to look past
the Debt Deal even as it has yet to become to the law of the land.
We will likely get the President's signature on the bill after the
Senate passes it later today; the House passed it Monday
evening.
With default no longer a concern but a rating downgrade that may
still be in the cards, stocks have moved on to fretting about the
growth question. And there are plenty of reasons for investors to
keep an eye on the U.S. economy's growth outlook.
The market was looking for a rebound in economic growth in the back
half of the year after the first half fell victim to what appeared
to be temporary factors such as high gasoline prices, theJapan
disaster and unusual weather. Friday's GDP report showed us that
growth in the first half of the year was even weaker than what we
thought we had.
This meant that the U.S. economy has entered the second half of the
year with a lot less momentum than all of us had expected. Add to
this the weak July ISM Manufacturing report from Monday, and we
have a less than reassuring start to the third quarter.
Will GDP growth expectations for the third quarter, which currently
remain above 3%, come down in the coming days or we will start
seeing evidence of above-trend growth in the days to come? It is
hard to answer that question with any level of certainty at this
stage. The July non-farm payroll numbers coming out this Friday may
help a little in answering it. But my feeling is that we may have
to wait a bit longer than that.
In contrast to the erratic behavior of the economic recovery since
the end of the Great Recession in the summer of 2009, the corporate
earnings recovery has been a standout performer. We are still going
through the second-quarter reporting season, but I have no
hesitation in saying that earnings reports in the first half of the
year have been signficantly better than what the underlying economy
has done. Given this track record, it may not be unreasonable to
extrapoloate this performance to the back half of the year.
We are more than two-thirds done with the second quarter earnings
reports, but we had results from a handful of important companies
this morning. Drug giant
Pfizer (PFE) beat EPS
expectations by a penny on lower taxes as revenue came inline with
expectations.
Coach (COH), the handbag maker, came
ahead of EPS expectations on inline top-line results.
Archer Daniels Midland (ADM) missed earnings
expectations as revenue gains were offset by compressed by
processing margins.
ARCHER DANIELS (ADM): Free Stock Analysis Report
COACH INC (COH): Free Stock Analysis Report
PFIZER INC (PFE): Free Stock Analysis Report
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