Stocks were pushed to their tipping point on Monday. On Tuesday they fought back a little with European bond rates modestly on the decline and a slew of strong corporate earnings reports.
The oddity on the day was that Apple shares were down another 2% making some think that the “smart money” knows that an earnings miss is on the way. Well the smart money was anything but smart following this false trend. After hours Apple supplied another tremendous earnings beat leaving little doubt of their excellence. Shares are exploding higher as are the S&P futures.
Beyond Apple this is a much better earnings season than last quarter. The best place to see this is in the estimate revisions ratio which now stands at 1.21. That means that 20% more companies are seeing positive estimate revisions than negative. And that makes it the best reading since August 2011.
Normally strong earnings news is all you would need to know to predict higher share prices. And if the US economy were an island unto itself, then the S&P would be at 1500 already. However, we are part of a global economy. Thus, growing concerns over European debt and what that means to the world economy continues to take precedence over the strong earnings reports in hand.
The best case scenario at this time is a trading range of 1370 to 1420 until the new debt concerns are packed away. I’d think we’d all be pleased as punch with that. Unfortunately I still sense we will head under that range before all is said and done.
Best,
Steve Reitmeister (aka Reity… pronounced “Righty”)
Executive VP, Zacks Investment Research
Pelias' views 