“You can cut all the flowers but you cannot keep Spring from coming.” ― Pablo Neruda
As March ends each year, the birds start to chirp a little louder with the onset of spring.
In many places, with the transition to a more pleasant environment, comes some improvement in the general mood.
Nowhere would the preceding description be more apt than in the capital markets.
The March jobs report showed 215,000 jobs were created during the month, topping the 205,000 estimate.
The unemployment rate did pick up a bit to 5.0% as the corporate earnings period begins in earnest a few weeks from now.
All eyes will now turn towards profit reports to see what the bottom line brings for public companies.
The Fed
Anyway, US Federal Reserve Chairman Janet Yellen certainly must be happy as her preferred policy approach, lower for longer, will probably remain intact for quite a while.
Fed funds futures now seem to price in only one interest rate hike for the rest of 2016.
If corporate profits disappoint in the next few weeks as many believe they will, there will be even less pressure on the Fed head to return back to interest rate ‘normalization.’
Dollar weakness has been the result, helping commodities, emerging markets, and anything energy-related, not to mention the stock market.
The first quarter was essentially one of two stories for domestic stocks. The first six weeks were abysmal, and the last six were equally wonderful.
In sum, it kind of followed the seasonal pattern of a difficult winter transitioning into a comfortable spring (that is the game plan anyway).
Energy Sector
The energy sector was yet again front and center with the fall from grace of SunEdison (SUNE).
Valued at $10 billion as late as July of last year, it appears the company will soon file for bankruptcy, according to press reports.
Whenever the SEC and Justice Department question cash levels along with accounting issues, you have to know the circumstances are not good.
Piling up $7.9 billion dollars of debt without the assets and cash flow to pay for it also did not help the cause. Oil heading dramatically lower certainly did not help either.
This is the familiar pattern of an enterprise running into trouble because of aggressive assumptions versus entrenched competitors.
Another familiar reason for trouble is taking on way too much relative to the underlying business. That can leave a promising company at the mercy of its creditors.
In my opinion, the lesson to learn for investors is to understand the level and maturity of the respective debt obligations of any leveraged entity.
Photo Credit: Jeff Kubina via Flickr Creative Commons
