It took less than an hour for the market’s focus yesterday on the Fed press release at 12:30 to shift back to concerns about Europe, as rumors surfaced that Merkel had agreed to ESM bond buying. We are sure to get more headline mania ahead of the European leaders summit on June 28th and 29th.
What is getting missed among the emotional moves up and down is the continued weakness in developing markets. Stocks ended up basically flat yesterday, and futures have been hovering close to flat this morning, but commodities and China-related stories have not been able to catch a bid (FXI -2.75% yesterday). Most surprising to me was the selloff in oil yesterday, down around 3%, almost all of it prior to the Fed announcement, and it’s making new lows this morning. Copper is also only 3% from its recent lows.
These are classic signals of slowing global growth. And it is affecting U.S. companies. Here is a chart from Abnormal Returns by way of Ed Yardeni, illustrating the continuing revisions to revenue projections for S&P 500 companies:
As PG illustrated yesterday, the bulk of this decline in growth is due to international businesses. Near-term policy announcements are unlikely to stem that tide.