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Strength in the stock market so far in 2019 has been driven principally by the abrupt shift in tone by the U.S. Federal Reserve in early January from a bias to raising interest rates and reducing the size of their balance sheet to a ‘market loving’ stance of being “patient” about the need for further interest rate hikes and ‘quantitative tightening’. This reversal has been treated by stocks investors as a ‘green light’ to risk taking, as all the fears about rising rates and their impact on growth and market valuations in the final quarter of 2018 were effectively eradicated. While stocks rallied sharply once those rate risks were removed, the future direction of stocks is now more dependent on what the earnings and economic data actually deliver. That is why the current earnings season is so critical. The early returns have given fodder to both the bulls and the bears. While the numbers have so far exceeded expectations, especially in the higher growth areas of technology, those expectations had probably been overdone to the downside due to the worries in the fourth quarter. The ‘expectations bar’ was effectively set extremely low. Even with the plethora of ‘beats’, the earnings are still down 3% on a year-over-year basis, the weakest overall results since 2016. (more…)