There has been no specific news behind the recent advance and today affirms this notion. declines.
The off-kilter, not-what-it-seems session Monday was exemplified by the persistent firmness of the S&P 500 Volatility Index ($VIX), which typically only rises during market declines as worried investors buy insurance against declines. When it’s up in an up market, it suggests institutions are preparing for setbacks even while outwardly the markets look chipper.

Financials were the best sector of the session, led by banks. Utilities were also electric, up 0.7%, in synch with higher bond prices — an event that reduces bond yields and thus lessens them as competitors to dividend yields.

Nothing new on the central bank front, though a couple of Federal Reserve officials made comments on the rubber chicken circuit.

– San Francisco Fed President John Williams noted in public comments that the Fed will get two more months of data, including jobs reports for April and May, and if data were good enough the Fed could hike rates as soon as June. Williams has regularly warned against acting too late on policy.

– Chicago Fed President Charles Evans in contrast reiterated his belief that, “It likely will not be appropriate to begin raising the federal funds rate until sometime in early 2016.”

By now you may know my feeling about Fed officials’ comments. They are all coordinated by the central bank to make sure that both sides of the debate are represented. The only person who will truly make the final decision is the chair, Janet Yellen. All the rest of the chatter is noise.The big economic report due this week is April’s employment data. It will be out at 8:30 am ET on Friday.

Expectations are for a 225,000 increase, which would follow last month’s disappointing 126,000 increase. The unemployment rate is expected to move slightly lower to 5.4% from 5.5%. Most April surveys have shown improvements in employment components, but I still think that these views are overly optimistic.

Over in the euro zone, Greece is continuing its talks with its credit overlords. Media reports suggest that significant progress has been made, but differences remain on many issues including fiscal assumptions, asset sales and labor reforms. A Greek official has stated that the country has enough cash to get through the week and make a 200 million euro IMF payment on May 6. Another 770 million euro installment is due to the IMF a week later. It’s a tall order. Where is Hercules when you really need him?

Greece would like to make a deal before Wednesday, when the European Central Bank will discuss emergency liquidity for Greek banks and could decide to increase haircuts on collateral. Even if a deal is reached soon between Greece and creditors it will take weeks for the next aid tranche to be paid, so the country would be unlikely to see aid payments by May 12. Mark your calendars.

Over in China, manufacturing data for April were weaker than expected and showed factory activity shrinking in April. The pace of decline was the fastest in a year. The report also showed that stocks of inputs fell at a faster rate and that input cost deflation accelerated.

The report drove economists to forecast further job cuts and reduced purchasing activity. Although data were weaker than expected, the resulting speculation regarding further stimulus provided support for Chinese equities, sending the Shanghai Composite up 0.9%.

It all comes down to EARNINGS.
I have watched the big drop in earnings during the first quarter of 2015. This sudden drop was caused by a precipitous drop in oil prices. That caused a steep drop in earnings for the energy sector, which was not offset by a rise in earnings for the consumer sector. But oil has seemingly bottomed and is headed back up right now.

A sudden spike in the U.S. dollar also took a bite out of companies that do a lot business overseas. But the run in the greenback has also cooled off. As of now, both of these negative factors seem to be behind us once again.

And even though this has caused earnings and the market to stall for now, earnings are expected to pick up once again. But will it be enough to sustain the bull?

Bottom Line
The strong rotation tells me that money really isn’t leaving this market, but rather simply rotating around from one sector to the other as participants try to find the best risk versus reward for their capital while still refusing to leave the market completely. On top of that rotation, we also had quite a few disappointing reactions to well-loved companies like Apple, Twitter, & LinkedIn to just name three.

As always – please call if you have any questions.

Thank you,


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