Encouraged by earnings reports, investors have shrugged off European debt worries and lackluster U.S. growth and are positioned to possibly make April the fifth-straight month of gains in the Standard & Poor’s 500 index.
At the market’s close Friday, the S&P 500 was still in negative territory for the month but not by much. The index is down just 0.36 percent and lately the momentum has been for a continued rise in stocks.
Corporate earnings have been flashing green lights for investors reluctant to partake. With 268 of the Standard & Poor’s 500 companies done reporting, 78 percent have reported profits better than anticipated. Although corporate executives have been mentioning pressures from Europe, many have overcome the strains and produced profits exceeding expectations. Starbucks and Procter & Gamble were among those that didn’t do it Friday. But Apple and Amazon dazzled investors, providing results far above expectations.
“Apple is the largest contributor to earnings growth by far for the entire S&P 500,” said John Butters, FactSet earnings analyst. Without Apple, earnings growth for the first-quarter earnings season would be 3.5 percent rather than the 5.9 percent for the index including Apple.
Investors focused Friday on the resilience of U.S. companies as a government report showed slowing growth in the first quarter. The gross domestic product annual growth rate was 2.2 percent rather than the 2.5 percent expected. But investors didn’t find the report as troubling as first met the eye because the slowing was primarily in government spending, while consumer spending was stronger than expected.
Earlier in April analysts speculated that the market might behave this year as it did last year and the year before, losing momentum in the spring and falling sharply as the economy slowed. Yet, JPMorgan strategist Thomas Lee said Friday, “The U.S. economy is on stronger footing today than in 2011.” He pointed to auto sales, a four-week decline in unemployment claims and housing starts that have been propelling a rally in homebuilder stocks.
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This week brings important economic data that will test the theory. On Tuesday investors will look for continuing expansion in manufacturing and Friday comes the April employment report. The last consumer confidence survey by the Conference Board found an increasing number of respondents saying jobs “were not plentiful,” although confidence has climbed sharply since last summer.