The S&P 500 has recovered about 15% from its February lows. The sharp advance was initially fueled by a rebound in oil prices, a fall in the Dollar, less negative economic news out of China and the expectation of a more dovish Federal Reserve. Investors’ focus has now turned to earnings releases for the first quarter. The first test of the season was centered in the financial sector where expectations were extremely pessimistic due to rate compression and selective credit deterioration. Reports have been generally weak but not as bad as feared with a few unanticipated surprises. These results bolstered the rally as we continued into the month of April. Overall, analysts are projecting a low-teen decline in profits for the quarter compared to a forecast of flat growth at the start of the year. Recent earnings releases have been mixed; some better than expected results have been offset with underwhelming reports and lowered guidance. Considering the index is near its all-time high, we feel earnings growth will have to be more robust to keep the rally advancing from current levels.
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