Equity markets were well behaved after the FOMC meeting closing slightly lower after pullback. The fact was there was nothing really ground breaking nor indication that rate path would be steep enough to derail current risk rally. US earning season is nearly over any so far the results have been extremely positive. Of the 300 companies reporting 75% have signaled positive growth earnings (even stagnant Apple reported earnings growth while buyers waited for iPhone 8). Upside surprises came from cyclical sectors such as consumer discretionary, industrials and materials but consumer staples and defensive earning were flat. Rise in gasoline prices in 1Q lowered household free cash, support by sluggish retail sales constricted earnings growth.
Steepening of the US yeild curve should benefit financials moving forward. Real estate sector is likely to be most vulnerable by rising interest rates. Should earning growth continued at this pace, calls of overvalution become more complicated. In the ultra short term we could see a minor bearish consolidation ahead of the French elections.
By Peter Rosenstreich