Expectations vs Reality


Someone once told me, “Perception is reality”. Well the markets perception of first quarter activity does not look promising…

Over the last quarter we have dealt with harsh winter weather, depressed oil prices, heavy stimulus activity abroad, and deflation concerns across much of the globe. As 1st quarter earnings season gets underway, expectations are way down, which could be good news.

Harsh weather kept construction workers and home buyers away, making jobs data and housing data look very weak. Depressed oil prices due to a glut of supply have caused deflation concerns for many countries. Those concerns accelerated the timing of stimulus, which has devalued those currencies. As a result, US goods have looked more and more expensive and revenue generated abroad has converted to $ at lower quantities.

All of the above events create an environment where expectations for corporate earnings are very low. Lower expectations means better likelihood for success. It would be as if your mother said she would be happy if you got a C in school even though the expectation had always been for you to get an A…

Now, we would all hope that Corporate America would be self-motivated enough to get straight A’s, but the global circumstances previously mentioned do not really lend themselves to an “A” environment.

Unemployment figures released showed a slowing in hiring as only 126,000 nonfarm payrolls were added[1]. In stark contrast was the fact that current job openings has expanded beyond 5 million, at 5.133M[2]. This indicates willingness to hire. It is assumed by many that harsh weather had much to do with the light hiring, since the leanest areas for growth were construction, leisure, and hospitality[3].

It is a positive that expectations have been lowered. As should be reflected in relative out performance for the market during 1st quarter earnings season. The reality, however, is that output and production during the first quarter was likely weak.


While Service PMI for Europe slipped 0.1, there was only one EU country of major relevance that saw a fall, which was France. Spain, Italy, and Germany all saw their service number increase for March. Greece managed to make a debt payment expected to the IMF. This reduced concerns over Greek threats to fight the EU on its bailout terms.

Due to the success of the program, The Bank of Japan (BOJ) is continuing its current stimulus, providing ¥80T in funding annually to its economy[4]. This program should continue the trend of weakening foreign currencies against the $. A trend that can prove problematic to growth of international assets near term.

Mexico became the first country to bring a 100 year € bond to market this last week. The bond sold €1.5B and yields 4.2% for 100 years[5]


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Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.

[1] www.mfs.com – week in review

[2] www.investing.com – economic calendar

[3] www.troweprice.com – weekly market wrap-ups

[4] www.mfs.com – week in review

[5] www.troweprice.com – weekly market wrap-ups