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Investing Specialists

The New Energizer Bunny

The U.S. consumer keeps going, and going, and going...

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Markets went almost nowhere this week as every piece of negative news was matched by a piece of positive news. From China to Europe to Brazil, a lot of interest rates went up, but U.S. retail sales were surprisingly strong. Oil prices jumped to over $110 per barrel, but initial unemployment claims fell to a near recovery low. Portugal formally requested financial help, while merger and acquisition activity continued to power ahead with the announcement of the  Texas Instruments (TXN) and  National Semiconductor (NSM) merger. Both the Japanese and the Libyan situations aren't much better than they were a week ago, but those stories weren't plastered all over the front page either. That honor belonged to the Congressional budget deadlock, which remained up in the air as of my Friday afternoon press time.

Bankers Worldwide Try to Slow the Party with a Series of Rate Increases
Frankly, I continue to be surprised about how well the market is receiving negative news. I would have thought that such a broad range of countries raising interest rates, with the aim of slowing growth and inflation, would have been disastrous for worldwide stock markets. China increased its rates for the fourth time in six months to 6.31% in an attempt to hold down inflation rates that are nearing 5%. The European Central Bank made its first post-recession move, raising interest rates to 1.25% from 0.25%. Brazil also moved to slow growth by raising the tax on borrowed money to 3% from 1.5%, a de facto rate increase. Though interest rates take a while to take hold, they could begin to slow economic growth by the end of the year. The good news is that the higher rates should also slow inflation, which remains one of my biggest worries. It might also bring the current commodities boom to an end.

S&P Earnings Growth Could Approach 15% for First Quarter, Revenue 10%-Plus
I think the market is probably optimistic about the upcoming earnings season, which kicks off Monday with  Alcoa's (AA) results. General expectations are for the earnings growth of the S&P 500 to approach 15% in the first quarter. Positive news out of companies (for example, Oracle (ORCL) and  Accenture (ACN)) that report off-cycle earnings (not the typical March, June, September, December months) have people excited about the prospects for the first quarter. Earnings warnings seem to have been a bit sparse so far, too. Rumors are circulating that S&P 500 revenue growth might move into double digits in the first quarter--the first time that's happened since 2006. It's not all about cost-cutting this time around.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.