April 23rd, 2012 10:23 AM by Mel Samick
The movement of Apple's stock price this year somewhat summarizes the sentiments of the U.S. Economy. It began with euphoria, but is now likely slowing down into a correction phase. There's nothing to suggest any kind of hard-stop for the economy, but the news has turned from solid in the early two months of the year to more mixed in the most recent two. The Fed has noted that growth in the fourth quarter of 2011 was "moderate" at best, but it seems that further moderation has happened in the first quarter of 2012. Unfortunately, it looks as though we have entered an economic soft patch of sorts, and that the kind of upward momentum needed to move us from "recovery" to "expansion" isn't happening quickly enough. Financial markets seem to swing daily on speculation about what the Federal Reserve is going to do next. On any given day, investors expect the Fed to launch a new bond-buying program to reduce long-term interest rates and boost growth and the next they expect it to raise short-term interest rates sooner than planned to restrain inflation. Investors have been uncertain about growth momentum, and flight to Treasuries continues with 10-year Treasury yields well below the 2.0 percent level.
It was another mixed economic picture in the U.S. this week. On the positive side, we saw rising Retail Sales, falling oil and gasoline prices, rising bank earnings, positive leading indicators, and an expanded outlook for world GDP this year. However, the optimism was dragged down by rising initial claims for unemployment, declining Housing Starts, Existing Home Sales, a slowdown in the growth rate in U.S. manufacturing, and further problems in the Eurozone. The stock market feels "heavy" and interest rates remain low.
The changing forecast and durability of growth will be one of the most important topics of discussion at the Central Bank's policy meeting on Tuesday and Wednesday, when officials will update their quarterly economic projections. The outlook arguably has not shifted enough that would support new initiatives to boost economic growth. The new forecasts could project a little more inflation in 2012 than the Fed forecast in January, thanks in part to a recent rise in gasoline prices. It could also project a little less unemployment for 2012, thanks to recent declines in the jobless rate. But the overall growth outlook for 2012 doesn't seem to have changed much from several months ago. The economy looked at times in the first quarter as though it was gaining momentum, but it finished with a whimper... which will likely reinforce Fed officials' worries about the recovery's durability. That should also mean their projections for 2013 and 2014 won't change much until they get more evidence about the ever-evolving recovery. Whereas we don't expect any significant changes to the Fed statement, member economic projections could shift slightly, reflecting a lower unemployment rate and higher inflation.
Apple reports quarterly earnings results tomorrow and the market is expressing nervousness prior to the release. The stock is up 40 percent year-to-date but down 6 percent for April and nearly 10 percent since hitting all-time highs just two weeks ago. The official estimates are for earnings of $9.95 on just north of $36 billion in revenue. Any positive surprise may provide a little fresh boost to the market - which is currently weighing heavily on news from Europe.
The Fed is meeting on Tuesday and Wednesday and will pretty much set the tone for the week. A few important upcoming data releases include New Home Sale on Tuesday, Jobless Claims due to be released on Thursday and the GDP Report on Friday. Consensus estimates a deceleration in activity to perhaps a 2.2 percent rate for the quarter.
Information Provided by NYCB Capital Markets