As the Q1 EPS reporting season comes to a close and Q1 GDP softness gets written off to transitory factors, investors are searching for the catalyst to propel stocks out of this ever-narrowing trading range. Rates? Jobs? Nervous investors remind us that both large- and small-cap U.S. equity indices have been violently treading water, attracting circling opportunists who feed on foundering securities. Sector spinning has also indicated a lack of directional conviction. We continue to advise clients to respect the traditional seasonal softness and current valuation richness that prompted our late-April recommendation to lighten up on U.S. equities, but acknowledge that the lack of attractive alternatives to stocks still gives reason not to be overly cautious.
More than four-fifths of the S&P 500 have reported Q1 2015 EPS. Of the 408 companies that have reported, 276 beat analysts’ estimates, while 93 missed and 39 met. That equates to a 68% beat rate, which is below the 73% beat rate at this time last quarter, but ahead of the historic average of 66%. Only 43% of companies beat revenue estimates, however, and are seen falling 1.8% for the quarter and 1.3% for 2015.
From a technical perspective, the S&P 500 index continues lower after pulling back from what is now a solid line of resistance between 2115-21. Traders are concerned about economic growth and Fed Chair Yellen’s comment this morning about high stock valuations. A series of higher pivot lows since March maintains the bias bullish for now, but something has to give soon. The index remains vulnerable to a pullback into 2068/2051 and even 2036. Separately, i10Research Rates sees the 10-year yield testing deeper into resistance around 2.155-2.355. A move above 2.335 would signal a change in the larger trend favoring additional upside in rates. They also look for a pause or pullback in crude oil to 61-62, before a move into the next level of key resistance between 66.75-68.75.