Before the Bell: The economy is booming, the labor market is strong, earnings beat expectations. What’s next?



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While worries about an impending recession have subsided, it may still be difficult for the economy to maintain its recent run of successes. But that does not mean it's impossible.

the S & P 500 (DVS) and the Nasdaq Composite (COMP) have established a series of records in recent weeks. And market observers believe that we will see more. the Dow (DJIEW) It could also set a new historical record as the year progresses.

Economic growth is not expected to fall off a cliff this quarter. In general, Wall Street believes that the economy has more to offer. The consensus estimate is a 1.7% growth between April and July, according to the Atlanta Fed.

In the first three months of the year, the economy expanded thanks to growing inventories and exports, more volatile factors than, for example, consumer spending. If those factors fall in the second quarter, it could be a drag on the economy.

"Second-quarter GDP has the potential to be a disappointment, and inventories will be a drag on GDP over the next two quarters," said Omar Aguilar, director of equity investments and multi-badet strategies at Charles Schwab Investment Management.

That said, consumer confidence could come to the rescue, overcoming any negative impact of inventories. US consumers UU They did not waste much in the first quarter, but that spending could rebound this quarter.

The Federal Reserve, on the other hand, does not seem to see red flags. Fed chairman Jerome Powell remains committed to his "patient" approach to policy changes, despite inflationary inflation and calls by President Donald Trump to reduce rates in hopes of boosting economic growth.

"The Fed pivot was probably the biggest catalyst for the rally in stocks earlier in the year, and now economic data will be the catalyst to keep it going," said Kate Warne, investment strategist at Edward Jones.

The background of the favorable economic fundamentals creates a better climate for investment than the actions of the last time that reached record levels in the fall of 2018. This should be reason enough for many investors who are on the sidelines to get involved and put their money to work.

"At the end of the year it will have been one of two things: either the market was wrong or the Fed was wrong, if we see that the lack of inflation continues with lower economic growth, the Fed will have to cut rates. , the market will have to adjust its expectations, "said Aguilar.

For earnings for the rest of the year, badysts will keep a close eye on margins. As wages have increased, companies have not transferred those costs to their consumers. So far, they have been able to reduce costs elsewhere to balance things. When that is no longer possible, the margins will be compressed.

2. ECB and growth: The European Central Bank will give its monetary policy update on Thursday and all eyes will be on its badessment of the eurozone economy. In its latest update, the central bank said that the growth risk of the eurozone remained tilted to the downside. However, since then, the GDP reading of the first quarter of the currency block was better than expected: 1.2% year-on-year.

Compared to the United States, Europe's economy depends much more on exports. Therefore, the recovery of activity in China, which also showed better growth than expected in the first quarter, should be a good sign for this. Let's see what the president of the ECB, Mario Draghi, will have to say about it.

3. Synchronized global acceleration: The long and short of it is that economic data is improving in all areas. Fears of a synchronized global deceleration were met with stimuli from all sides. China remains firmly committed to supporting its economy. The ECB re-engaged in its longer-term financing operation, which first emerged to support local financial institutions during the European debt crisis. And Wall Street investors praised the Federal Reserve for standing up when it chose to keep rates stable this year.

"I think the global synchronized stimulus will lead to a global synchronized acceleration," said Steven Chiavarone, portfolio manager and equity strategist at Federated Investors.

4. Next week:

Monday – Sohn Investment Conference; Occidental Petroleum (OXY) earnings
Tuesday – US JOLTS; Anheuser-Busch InBev (OUTBREAK) earnings; Papa Johns (PZZA) earnings
Wednesday – SALT Conference; GE (GE) annual meeting
Thursday – Conference SALT, inflation of consumer prices in China, applications for unemployment in the US. UU And commercial data for March, update of the monetary policy of the ECB; Ford (F) annual meeting
Friday – Inflation of consumer prices in the United States, GDP of the United Kingdom Marriott (SEA) earnings
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