Note below from Mitch Zacks 5/3:
I have used this space many times to discuss how fundamentals drive stock prices over the long run. Additionally, in the midst of (sometimes severe) volatility and rising uncertainties that come with it, I've often made the point to stay focused on what really matters in terms of equity prices these days including:
> U.S. GDP expected to expand at a roughly 2% rate in 2016
> Earnings weakness in the first half of the year with an expected recovery of double digit growth in the second half of 2016
> Europe poised to gain growth momentum with an expected full-year growth of around 1%
> U.S. inflation could pick up to a comfortable 1%-1.5% as the year progresses and crude prices stabilize further Interest rates remain low globally. In the U.S., the Fed raises overnight rates more gradually than expected, and pressure on the 10-year eases (making for an upward sloping yield curve-good for growth)
> Global GDP expected to post in the ~3% range-modest but healthy
In Zacks Investment Management's view, each of these fundamental factors makes a strong case for expansion in 2016, not recession. And, as I've said many times, only very rarely have we seen a bear market without a recession.
But, there's the sentiment factor. We just saw how sentiment can drive markets in the first three months of this year. In the first six weeks, as fears mounted over China's slowdown and government intervention, the S&P 500 fell some -10%. But, as pessimism continued to grow, this eventually paved the way for the market to climb the proverbial 'wall of worry,' and markets love climbing that wall. Indeed, by the end of the first quarter, the S&P 500 was already back in positive territory.
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Energy Sector Q1 results are not going to be pretty, but the outlook for Q2 and beyond has significantly improved. - Dan