U.S. equity markets drew a sigh of relief from last week's key earnings reports, say the analysts at Global Insight, as earnings thankfully tracked ahead of expectations for a number of closely watched Blue Chips.
The earnings calendar next week will intensify further, with reports expected from quite a handful of market bellwethers such as IBM, DuPont, Boeing and Caterpillar. Bank of America and Morgan Stanley will also report next week, as well as a number of key regional banks.
Given the extremely weak economy in the first quarter of 2009 - IHS Global Insight expects real GDP to decline by close to 6.5 percent, while industrial production already put a stunning 20 percent decline on the scoreboard, and there was downward pressure on most product prices -- positive earnings surprises would indeed be miraculous in this type of environment.
Indeed, we expect the first quarter to close on a relatively soft note, as both existing and new home sales are expected to retract gains from the preceding month, durable goods orders are expected to slide down further, and the Conference Board's leading indicator is expected to decline.
Based on our early gleanings from the market, auto sales in April do not appear to be picking up momentum either. Thus, IHS Global Insight's own proprietary set of leading indicators still do not point to a solid inflection point in the business cycle in the next six months or so, but just some moderation in the rate of contraction.
All but two of the index's ten components likely worsened during the month, most notably building permits, which tumbled 9.0 percent from February. Weaker vendor performance (i.e. quicker delivery times), and falling stock prices also subtracted from the headline number. An improving money supply and a steep yield curve prevent will buffer the expected downward move.
Two competing forces are driving existing home sales. Distressed sales (foreclosures and short sales) in three western states - California, Arizona, and Nevada - are driving sales up. Driving housing sales down is weak demand across most states. We are expecting weak demand to win March's tug-of war between these two forces, and for sales to drop to 4.52 million units (annual rate). Although mortgage rates and prices have dropped to the point that affordability is better than it has been in decades, funding to buy a home is difficult to get.
The volatile factors that produce most of the monthly noise appear quiet this month: defense spending was very close to its recent average last month, aircraft orders are already very low (and unlikely to move much if Boeing orders are any guide), while motor vehicle orders should remain in the tank. The main reason to expect an overall decline is that we expect a reversal of last month's bounce in machinery orders.
Based on March's single-family permits estimates, and seasonal factors that pushed up February numbers, we expect a pull back in new home sales in March. We are also, however, expecting this market to hit bottom soon.
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