Happy Feet!

Equity Markets (except China) shrugged off the Greek situation and reversed course yesterday as investors and traders "rejoiced" at the continuation of the"lower for longer" interest rate scenario indicated by the FOMC's "dot plot" chart (see yesterdays blog).

The S&P 500 broke up through its recent short-term down-trend as buying re-entered the market with some heavier volume. Momentum could now potentially drive prices to re-test at highs at 2135.

Technically, the long-term up-trend remains intact:

Fundamentally, we are approaching the end of the 2nd Quarter and with that July will bring Q2 earnings reports.

Q2 Earnings Expectations:

• Earnings are expected to decline by 4.6%.
• This is a downward revision from March 31, where earnings were expected to decline by 2.3%.
• The 12 month forward price to earnings (P/E) ratio is currently 16.8, above the 5 year average of 13.8 and the 10 year average of 14.1.

Clearly, the fundamentals and the technicals are diverging (again) as market participant's take their direction from the Fed's (and other central banks) continued stimulative monetary policy.

While the Fed continues to see better ("improving") 2nd half 2015 economic conditions (as does the Bank of Canada), current conditions are at best, mixed:

• Employment growth continues (adding more costs to businesses).
• The consumer is saving more than spending (despite lower energy costs).
• Manufacturing is slowing.
• Business spending is not growing.
• The housing market is improving.
• Inflation remains subdued.

Are central bankers and their "rosy" outlooks actually "cheerleading" the economy?

Stay tuned.

www.highrockcapital.ca