OK enough about Q1, let's do something hard...let's talk about what will happen in the second quarter. Four quick observations.
1) everyone and their mother thinks this commodity rallyis going to continue in a straight line up. But why? Isn't it likely that the global growth theme is going to be tamped down a bit?
I noted this morning (Wednesday) that some strategists were already cutting GDP growth forecasts after seeing a retrenchment in consumer spending. Others have noted a widening trade deficit, some signs of a pullback in capital spending, and have also trimmed GDP growth.
2) Financials back in play. Everyone hates financials because of lower trading revenues, and weak loan growth...but there is a strong possibility of rate hikes, and that will be positive for banks...and they have been notable underperformers this quarter. (See: These Big Banks Are Still a 'Buy': Strategist)
3) Notice how no one has paid attention to Europe this quarter...how about a renewed focus on European debt issues, like they actually mattered, like we worried about them...at the end of last year?
4) The end of QE2 will have a much bigger influence on stocks than anyone thinks. Why do I believe this? Because the stock market went straight up the day after Bernanke gave his QE2 speech at the end of August, and has never really looked back. Traders bought believing the Fed's liquidity would find its way into stocks — how much did? Not exactly clear, but traders bought stocks with the conviction that QE2 mattered.
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