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Market Update

Stock Gains May Be Vulnerable to Fedspeak, Spotty Earnings

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October 15, 2015

Stocks are positioning for mild gains Thursday, spurred on by an Asian stock advance. But the move could be vulnerable to volatility swings. That’s because a mixed bag of earnings news continues to reflect the revenue challenges that industry analysts anticipated. What’s more, the Federal Reserve looks to be in a tough spot as it approaches the final two interest rate meetings of the year. A trio of Fed speakers is on the docket today.

A Wall Street Journal piece from known Fed insider Jon Hilsenrath casts further doubt on the chance for a 2015 rate hike and sets the backdrop for this speech-heavy Thursday. There was a time when the promise that ultra-loose interest rate policy would stick around cheered stock bulls. Now, a no-action Fed is viewed by some as stemming from fear the global economy has sputtered and could get worse before it gets better. That means the stock market could hang on every word the Fed utters. St. Louis Fed President James Bullard spoke early and, so far, had not offered market-sensitive remarks. New York Fed President William Dudley is slated to speak at 10:30 a.m. and Cleveland Fed President Loretta Mester at 4:30 p.m.

SPX-stock-chart

FIGURE 1: CONSOLIDATION AROUND 1990? The S&P 500 (SPX), charted on the new-look thinkorswim® platform, continues to churn around the 1990 area. It fell in back-to-back sessions but is indicated higher early Thursday. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

More from the Banks. Goldman Sachs (GS) is an early decliner as a drop in trading volumes during a highly volatile quarter cut into its earnings performance. Its post-release move of around 2% matched that forecasted by the thinkorswim® Market Maker Move; MMM indicated the options market expected a 2% move in either direction for GS around the earnings release. Goldman said Q3 net income fell to $1.43 billion, or $2.90 a share, from $2.24 billion, or $4.57 a share, a year earlier. Revenue dropped to $6.86 billion. The Wall Street firm was expected to earn $2.91 a share on revenue of $7.13 billion, the average estimates of analysts polled by Thomson Reuters. Citigroup (C) could be active. It stripped out accounting adjustments to report earnings of $1.31 a share, up from the comparable $0.95 per share a year earlier and topped the $1.28 expected by analysts polled by Thomson Reuters. After stripping out accounting adjustments, revenue was $18.5 billion, in line with analysts' expectations.

Netflix Subscriber Slump. Netflix (NFLX) shares dropped after hours Wednesday after the video streaming service reported disappointing subscriber growth in the U.S. and saw its profit fall versus the year-ago comparable. Those results followed higher costs for content and expansion. Overall, NFLX added 3.62 million streaming subscribers in the September quarter, better than the 3.55 million it projected in July. Netflix said it added more international subscribers than expected but fewer in the U.S. In the U.S., Netflix added 880,000 subscribers, below the 1.15 million subscribers that the company projected in July. The market also continues to react to a subscriber price hike, which could impact upcoming earnings results.

Wal-Mart Details Spending. Wal-Mart (WMT) shares could be up for more action after a 10% drop Wednesday marked their deepest one-day loss on record. It’s now down almost 30% on the year. It was enough to single handedly clip some 45 points from the Dow Jones Industrial Average ($DJI). That’s a reminder of how sensitive the relatively narrow Dow is to big movements for its listings. Investors are reacting to the retail giant’s spending plans, including a $20 million share buyback. WMT plans to spend for the next several years on its U.S. and e-commerce businesses, both of which are facing increased competition from Amazon.com (AMZN) and others. This sector could see fallout if other participants continue to be challenged in the “price war” between these two. The fallout could be far reaching in the sector. WMT is now working from a three-year plan that includes capital investments of about $11 billion in fiscal 2017 and another roughly $1.1 billion to be spent on e-commerce and digital initiatives. That’s after an estimated $12.4 billion of capital investments in fiscal 2016. Its technology spending will eat into earnings for fiscal 2017, executives told analysts at a conference.

Good trading,

JJ

@TDAJJKinahan

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