Market Muddling Through

Companies are making do by cutting costs

   

Last week stocks went way down, then went way back up, and ended just about where they started — which is just about par for the course these days, isn’t it? The market started down but stormed into the close on Monday, but fell on Tuesday and Wednesday, fell into a midday low Thursday before climbing back to a high, then following a very strong nonfarm payrolls report, it gapped higher Friday morning, leveled off midday and closed with a surge into the end of the day.

If the market continues true to form, it would pull back on Monday. It seems like every time the market closes at a relative new high, it promptly comes back and goes lower the next day. However, I don’t think that will happen this time. People are basically getting accustomed to the idea that the economy isn’t strong by any means, but it’s not falling apart.

Companies have lots of different ways to meet their earnings estimate even though revenue growth is quite anemic. They can hire fewer people; they can buy commodities more cheaply. That makes for a lot of confusion because from a macroeconomic standpoint, you’d think there’s no way for companies to be successful, but they’ve managed to pull a rabbit out of their hats each quarter. I think that’s really what investors are anticipating now. We are stuck in a growth environment of about 1%, and while that would normally be horrible for an economic recovery, companies are making do.

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