These days, there’s a lot of talk about political pivots, but there’s also another pivot happening that is critical for investors in the U.S. stock market. This is the first quarter since April 2014 (4Q14) that top line sales and earnings were higher year-over-year.  It’s been an amazing drought that has held back many investors, leery of a market with sinking revenue and earnings, propped up largely through corporate stock buybacks.

However, those buybacks are fading, and earnings are a more authentic representation of business conditions; this earnings season, they came in on an average of +2.1%, reversing declines from the last two quarters.  The big story is revenue, where it’s a lot harder to manipulate true circumstances; it has edged up 0.4% from a year earlier.

Overall, with 474 companies reporting, 71% have beaten on the bottom line and 55% on the top line.  On Friday, retailers enjoyed huge gains; Ross Stores (ROST), Footlocker (FL), and even the Gap (GPS) rallied.

However, the big winner on Friday was Deere & Company (DE), which enjoyed a 13% rally on earnings and a warning about “challenging market conditions.”

Talk about a pivot- I keep seeing stock spikes that erase months, and even years of share price erosion with one good earnings report.

On the whole, the market is stuck in a summer malaise that probably will continue next week; there are individual names that have the potential to pop on earnings, including the following:

• (SJM) J.M. Smucker Co.
• (KIRK) Kirkland’s Inc.
• (LZB) La-Z- Boy Inc.

Moreover, if history is a guide, this earnings pivot is just the beginning, and we could see stronger numbers propel stocks higher the rest of the year.  We’ll know more this week.

Today’s Session

The market comes in under slight pressure from comments from Federal Reserve Vice Chairman Stanley Fischer that the Fed’s work is just about done.  Saying “we are close to our targets,” at the Aspen Institute gathering ahead of the big Jackson Hole meeting on Friday is the kind of telegraphing meant to assuage the street so nobody can claim to be caught flatfooted. 

Fischer is making the assumption GDP growth will pick up in part to an increase in investments.

Stanley Fischer, who is perhaps the most highly regarded central banker in the world, also took an indirect shot at the White house.  Admitting that monetary policy “isn’t equipped to boost productivity growth,” but instead that falls under the purview of “fiscal and regulatory politics.”

He went on to say government should improve public infrastructure, better education and more incentives for private investment.  This has been a complaint from the Fed for a long time, but one they are limited in articulating.  Some may argue it’s the Fed’s excuse for not stoking a virtuous cycle in spite of extraordinary actions that helped only a sliver of the population.

Others agree the Fed is the only reason the economy survived, and a business-friendly federal government was the missing link, resulting in the worst post-recession recovery ever.  As it stands now, the street is prepared for a rate hike in December, and the only question is whether it’s 25 basis points or 50 basis points or more.

CME Group