If it’s not stocks, it’s bonds!
In a turnaround worthy of Bruce Willis in a ‘Die Hard’ movie, expectations for second quarter’s corporate earnings growth soared from below expectations, on average, in the previous week to beating expectations last week. Earnings growth estimates shot up to 4.1 percent which was a significant change from last week’s 2.8 percent. Of the companies that have reported so far, more than one-half have performed better than expected – an improvement on the last four quarters’ performance.
Whether it is earnings performance or other factors, consumers have become more confident than they’ve been in years – six years to be specific. The Thomson Reuters/University of Michigan’s consumer sentiment index beat expectations for June even though consumers expect growth to slow next year.
Things were not so rosy for bond markets which have been selling off since early May on speculation the U.S. Fed will temper quantitative easing before the end of the year. Yields on 10-year Treasuries have ascended since early May.
Ben Bernanke’s impending retirement from the U.S. Federal Reserve also has bond markets roiled. Speculation about who will become the next chairman of the Federal Reserve, and how his or her policies will differ from Bernanke’s, is unsettling investors and creating potential for bond market volatility, according to MarketWatch.
On the public finance side of the market, U.S. municipal bond investors are reeling after U.S. City, Detroit’s bankruptcy declaration. The city’s dire circumstances have caused some pundits to look more closely at municipal credits. According to Barron’s, 83 percent of Moody’s Investors Service’s second quarter municipal bond rating changes were downgrades.