October 19, 2010

Schwab Market Perspective: Shift in Focus?

Stock and bond markets have been focused on central bank action around the world, especially the US Federal Reserve, as policymakers have backed away from tightening rhetoric and indicated continued support in the form of open monetary spigots. This has helped the rally in stocks and other risk assets, and the continued compression in Treasury yields we saw in September continues.

However, with weeks before the next labor report, Fed meeting, and US midterm elections, investors are turning their attention to the current earnings reporting season. This earnings reporting season began with dampened expectations. According to Wolfe-Trahan & Company, the S&P 500® index negative-to-positive pre-announcement ratio was above the long-term average coming into the reporting period.

While this can be disheartening, it also allows for the possibility of more surprises on the upside, which could be positive for the continuation of the recent rally. We urge investors to pay attention to the forward-looking comments in these releases for clarity on demand trends, confidence issues and future earnings prospects.

Link: https://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/recent_commentary/schwab_market_perspective.html