Busy Week Ahead as Markets Gear Up for Fed Talk, Earnings, Economic Reports

In the early going, the market’s three major benchmarks looked headed toward an upward trajectory. But there are many trading hours ahead and anything could happen to derail it.

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(Monday Market Open) Are investors ready to keep up Friday’s pace? In the early going, the market’s three major benchmarks looked headed toward an upward trajectory. But there are many trading hours ahead and anything could happen to derail it.

The Dow Jones Industrials ($DJI) were up nearly 200 points early on, but moderated somewhat ahead of the open. The S&P 500 (SPX) and the Nasdaq Composite (COMP) were both also slightly higher before the open. All three measures finished Friday’s session up better than 1%, with the Nasdaq gaining 1.8%.

Wall Street’s fear gauge, the Volatility Index (VIX), was off modestly in the early going following Friday’s near 12% drop. That puts the VIX back into what the Street considers more “normal” levels, though still above much of last year’s low levels. (See below).

This week looks to be a heavy one: the end of one month and beginning of another, with a calendar dense with economic reports that could influence monetary policy. The week starts with new-home sales today and includes scheduled reports on durable goods on Tuesday, the gross domestic product (GDP) on Wednesday, and personal consumption expenditures, or the PCE, on Thursday, an important measure of inflation for the Federal Reserve. The PCE has dawdled well below 2% since 2009.

In December, sales of new single-family homes dropped an unexpected 9.3%, the biggest decline since August 2016, though they were up 8.3% on the year, according to the government. Groundbreakings on new homes jumped 9.7% in January, which might show up in some of the numbers expected out later this morning.

Last week’s report on existing home sales was a relatively dire one: Sales in January, on a year-over-year basis, fell the most in three years. Many analysts blamed the tumble on tight inventory; others attributed it to what’s known as “rate lock,” in which homeowners are unwilling to sell because they will have to buy a new home at higher mortgage interest rates. Maybe new-home sales will give a clearer picture on the housing market and industry.

What could be a headliner this week is Jerome Powell’s first testimony slated before Congress as the chair of the Federal Reserve. (See below.) Other Fed members also are scheduled to speak this week.

Earnings are still coming out, with many of the nation’s largest retailers scheduled to report this week. On the docket are reports from Macy’s (M), Best Buy (BBY), Gap (GPS), Nordstrom (JWN), Kohl’s (KSS), JC Penney (JCP) and Lowe’s (LOW). Some analysts said they think JWN might announce with earnings scheduled for March 1 that the efforts to take the company private, back into the Nordstrom family hands, could be finalized.

Ahead of the market’s open, Dean Foods (DF), the country’s largest seller of raw milk, reported earnings that missed Wall Street’s expectations. Shares were off nearly 10% at one point in the early going. DF said it will cut expenses through 2020.

VIX

FIGURE 1: IS THIS NORMAL?

The VIX looks like it’s calmed down quite a bit since peaking earlier this month. In the early going, it was retreating again to what Wall Street typically considers a more “normal” range, though it’s still higher than where it floated much of last year. Data sources: CME Group, Standard & Poor’s. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.

Cold Weather = Good Credit? Are consumers more likely to be more conscientious about their credit if they live in states with colder temperatures? Experian suggested that in its State of Credit: 2017 report.

The states with the highest Vantage credit scores were primarily in the Midwest and the Northeast as were the top 10 cities, according to the report. There were outliers, but not many. Minnesota, Vermont, New Hampshire, South Dakota, Massachusetts, North Dakota, Wisconsin, Iowa and Nebraska, were offset by Hawaii as the top 10 states. For cities, four were in Minnesota, four in Wisconsin, one in South Dakota and one in California, Experian reported.

Don’t Borrow $$ to Buy Stocks: That’s the word from Warren Buffett in his annual letter to investors. In it he included a chart that showed the percentage decreases of what he called four “truly major” dips Berkshire Hathaway (BRK/A) (BRK/B) shares have endured over the last 53 years. They were after rough periods that ended in the years that follows: 59.1% decrease in 1975; 37.1% in 1987; 48.9% in 2000 and 50.7% in 2009.

“There is simply no telling how far stocks can fall in a short period,” Buffett wrote. “Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”

It’s Tuesday for Powell: Federal Reserve Chairman Jerome Powell’s semiannual monetary policy testimony before Congress has been changed to Tuesday from Wednesday, according to a House panel. His second day of testimony before the Senate Banking Committee is still scheduled for Thursday.

Powell’s testimony, his first as the Fed boss, could be a must-watch event for some investors. They are likely to be listening closely to his remarks on the economy, inflation, and interest rates, though many analysts don’t expect much deviation from his predecessor’s stance. In its report to Congress last week, the Fed largely repeated what it has been saying for some time: Policy decisions will be data dependent. 

Good Trading,
JJ
@TDAJJKinahan

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economic calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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