Is the Economy Good or Bad

Based on corporate earnings we report that the economy is better than the news tell us.

Corporate profits are high and we are coming into the next season of sustainable high profits that will rain down on the market. When we go back to a P/E ratio evaluation, many companies are relatively cheap and in that case easy to acquire. This is what triggers M&A activities of key companies in the world. The most recent news are:

Wal-Mart (WMT) revealed a bid to acquire South African Massmart Holdings Ltd. for roughly $4.25 billion or $21.13 per share. Massmart is a leading African retailer of general merchandise, home improvement equipment and supplies.

Southwest Airlines Co. (LUV) also announced that it entered an agreement to acquire AirTran Holdings Inc. (AAI) for approximately $1.4 billion, including debt.

Unilever PLC (UL) announced a definitive deal to acquire U.S.-based Alberto-Culver Co. (ACV) for $3.7 billion in cash. Unilever expects the acquisition to be accretive to earnings in the first full year, excluding restructuring costs.

Some more good earnings reports:

Cal-Maine Foods Inc.'s (CALM) reported first-quarter net income of $4.76 million or $0.20 per share compared with a loss of $3.83 million or $0.16 per share in the same period last year. On average, analysts expected loss per share of $0.07 for the quarter. Net sales for the quarter came in at $190.4 million, just above expectations for $190.08 million.

Hence, the economy is not bad but does not produce the jobs expected. Many of the key US companies report profits ahead of many of the prior 5 years but were not able to top their best year ever when the economy was labeled: good.

So what do we expect for the market: Nervous continued rallies up with downslides at jobless claim reports. Let us watch out for Thursday this week: 8:30 a.m. – and we recommend not to be to heavy in the market at that day.