We’ve closed the books on the first quarter of 2009, remarkable on many levels. The S&P 500 had its best March monthly rally since 2002; it also hit its lowest point in more than a decade this past quarter, on March 9th. Since setting that low, however, stocks staged a rally with the S&P 500 index climbing better than 23 percent before starting to pull back.
It was a remarkable rally, since it appeared to be based on little more than just optimism and the fact that the market had probably been oversold. It seems, however, that optimism has finally met reality as the markets opened down again this morning, extending losses from yesterday.
Alcoa’s quarterly earnings report today is kicking o what’s expected to be a dismal earnings season. If overall earnings turn out to be better than expected, the market could resume the rally. What’s more likely, however, that the expectations are now set so low that beating them won’t move the shares up too much, if at all.
Furthermore, the recent rally had been largely driven by financials—the S&P 500 Financials Index has surged nearly 60 percent since early March—but the many downgrades in the financial sector highlight the lack of fundamental improvement.
Today, Morgan Stanley joined the chorus of advisers urging investors to reduce exposure to U.S. banks, specifically the mid-sized institutions, ahead of the first-quarter earnings.
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