Okay, the jobs report is out of the way and now the Street can brace for the next round of corporate earnings.   The good news is the street is looking for the best quarter market since the third quarter 2011.  Of course, with higher expectations comes higher risk, but this is the perfect test at the perfect time for the market.

S&P 500 earnings consensus for 1Q17 is for a 9.1% gain.  On top of that, consider that over the past five years, according to FactSet, results been beaten the consensus by an average of 2.9% points.  That means the street is probably looking for 12% earnings growth.  It’s a tall order, but it must happen, along with more confident guidance.

Coming into the week, 5% of S&P 500 companies have already reported (the truth is, earnings virtually never stop, although the bulk are in the period we term “earnings season”) with promising results:

• 57% beat on revenue
• 74% beat on earnings per share

This week big banks kick off earnings, and investors will look beyond individual performance to general clues on the economy.

Bond Dilemma

I’ve lost track on when the bond market was supposed to implode, but it’s been a universal theme almost every year and has failed to materialize.   This year, however, it seemed like a done deal as the nation would be flushed with stimulus cash and the Fed would hike rates no less than three times.  It appeared to be happening, then the wheels came off healthcare reform, and investors flocked into taxable bonds eschewing domestic equities.

The week it became clear the Republican healthcare bill was in trouble, individual investors dumped $6.8 in domestic equities while buying $12.5 billion in taxable bonds.

So, now bonds are attractive again as several unknowns haunt the market.

• Trump Economic Agenda
• European Rejection of EU
• British Exit Ramifications

I continue to see the recent shift into bonds as a cautionary move rather than an indictment of the economy, although the Trump administration is going to have to get real creative, and perhaps even unorthodox, to get portions of the economic agenda through.

That said, the 10-year yield is breaking below key support and that will cast a shadow over equities.

Today’s Session

There are two big deals making this an old-school Merger Monday.

• Knight Transportation (KNX) and Swift (SWFT) are merging in a deal that will create a $5.0 billion trucking giant with 23,000 rigs and 28,000 employees.
• AT&T is acquiring Straight Path Communications (STRP) for a 200% premium to gain a greater foothold into the bourgeoning 5G space.

In the aftermath of that lackluster jobs report, and with the lull until earnings releases, the market could meander, but this is a good chance to test the true pulse of investors.  The bias has shifted to the downside, although not significantly.