Ahead of Wall Street - September 26, 2012 - Ahead of Wall Street
September 26 2012 - 5:12AM
Zacks
Wednesday, September 26, 2012
Optimists will likely call the market's recent behavior a
consolidation phase, but the reality is that the market appears to
be having second thoughts about the QE3 inspired gains. The gains
started in the summer and pushed stocks to their highest level
after the announcement.
The market pause of the last few trading sessions may just be a
sign of tentativeness and nervousness ahead of next week’s key
economic data and the start of the third quarter reporting season.
But the tentativeness is completely justified. The return today of
Spain and Euro-zone centric concerns will add to the
nervousness.
I have been skeptical of the sustainability of Fed inspired gains
for a while and continue to believe that Bernanke’s open-ended bond
purchase program is largely irrelevant to the broader issues facing
the U.S. economy. Lack of economic growth, both in the U.S. as well
as worldwide, is steadily emerging as a far bigger drag on
corporate profitability than many in the market realize at this
stage. We have seen this show up in earnings projections for the
third quarter, which are expected to be down 3.4% from the same
period last year.
But expectations still remain high for the fourth quarter and
beyond in the hope that the economic growth issues in the U.S. and
China will prove to be temporary. It is useful to be somewhat
skeptical of that view at this stage and view the recent profit
warnings from companies like FedEx (FDX),
Intel (INTC), and Norfolk
Southern (NFC) as a sign of things to come.
My sense is that the third quarter reporting season will provide
this market a reality check, helping bring down earnings and
overall growth expectations for the out quarters. This may not
trigger precipitous market sell-off, but it will most likely cause
the market to give back some, if not all, of its recent gains.
Sheraz Mian
Director of Research
FEDEX CORP (FDX): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
(NFC): ETF Research Reports
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