The “Heat Map”

Posted on May 11, 2015 by The Weekly Commentary

Most of the time the U.S. stock market looks to 3 factors (call them the “pillars” that support the stock market) to support its upward trend – let’s grade each of the pillars.

CONSUMER SPENDING: This grade is a B (favorable) due to the a slowdown in spending. It may be weather related. We will find out in the next 2 months.

THE FED AND ITS POLICIES: We continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices.

BUSINESS PROFITABILITY: This factor’s grade is a C (average). With about 90% of S&P 500 index companies having reported first quarter earnings, the blended growth rate is 0.1%, better than expectations of negative 4.7% on March 31, according to FactSet’s John Butters. EPS growth is 7.7% without the energy sector.

OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 2, the same as last week. These risks deserve our ongoing attention.

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