Now more than an ever an upside surprise is needed.
Higher-than-expected earnings are always good news for the stocks market. But as third-quarter reports start rolling in the weeks ahead, another upside surprise would be extremely timely in the fall of ’07. Anything less may spell trouble above and beyond the usual risks.
Optimism has clearly been the dominant force of late. Despite the various financial blows that frightened investors in August and convinced the Fed to cut interest rates by 50 basis points two weeks ago, the stock market has more or less survived and even thrived. Equities are either at peaks or within shouting distance of all-time highs, depending on the index. The implication: the future looks rosy.
That’s a bold statement considering the lingering worries thrown off by real estate woes of late. Home sales, to cite one statistic, continue falling. There’s also the question of whether the labor market is set to contract, as suggested by the August employment report, which posted the first net loss in four years. Recession, in short, has been on the minds of many these past few weeks. But judging by the stock market, such worries are merely the stuff of overactive imaginations.
In fact, let’s not minimize the message emanating from Wall Street. The future looks damn good, equity traders are collectively shouting. “Equity investors clearly don’t see a significant risk of recession or a major slowing in corporate earnings,” Sal Guatieri, senior economist at BMO Nesbitt Burns, told The Globe and Mail on Monday.