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Fed Speakers On Tap, But Market Counting Time Until Friday’s Key Data, Earnings

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January 12, 2017

(Thursday Market Open) Don’t put off till tomorrow what you could do today, goes the old saying. But that tidbit of ancient wisdom may not apply at this particular time in the market.

With economic data and earnings looking rather sparse today, many market participants seem focused on tomorrow. That’s when we’ll see earnings from three giant banks, along with monthly retail sales and producer price inflation (PPI) data (see below). Today may feel like the market marking time until tomorrow, though a host of Fed speakers appear throughout the day and could be worth checking out.

It would take too long to list all the Fed speakers making appearances today, so suffice to say, it’s a lot and it starts pretty early. Most online financial media outlets have posted the schedule. The cap-off is at 7 p.m. ET when Fed Chair Janet Yellen is scheduled to address educators at a town hall meeting. It may be worth keeping an ear open for anything Fed speakers might have to say about the economic outlook, interest rates, and inflation.

Futures trading pointed to a possible lower open, but the Nasdaq has put together a string of record highs the last few sessions, rising nearly 3% over the last month. Yesterday was its fifth consecutive up day. And the Dow Jones Industrial Average continues to eye the 20,000 mark. Remember, 20,000 may be a nice round figure and it’s a great thing for the media, which have to fill up hours of cable news programming every day. But the S&P 500 Index (SPX) gives a better picture of the market as a whole.

Nasdaq’s new record high Wednesday came despite pressure on the health care sector, and biotech stocks in particular, which fell sharply after President-elect Donald Trump discussed drug pricing during his press conference. However, the markets saw some late buying and recovered slightly from concerns over Trump’s comments. That said, many are still waiting for details on how Trump plans to execute his proposals. Overnight, a number of the European markets were lower, with market participants apparently still pondering what to make of yesterday’s press conference.

Crude oil bounced back a bit on Wednesday from the weakness earlier in the week, despite a big build in U.S. supplies reported by the government. Weakness in the dollar, accompanied by Saudi Arabia cutting back on exports, helped the oil market recover, media reports said. With the bounce in oil came a rebound in the energy sector, which climbed more than 1% Wednesday to lead all sectors in performance. Still, energy remains the weakest-performing sector over the last month. Oil was up again early Thursday.

On the earnings front, Delta Air Lines (DAL) reported earnings per share that matched expectations, with revenue slightly above expected. The stock rose in pre-market action.

From a data perspective, import/export prices and initial unemployment claims came out before the open. Initial claims were close to expectations at 247,000.

S&P 500

FIGURE 1: NASDAQ STEALING THE SPOTLIGHT.

The S&P 500 Index (SPX), plotted here through Tuesday on the TD Ameritrade thinkorswim® platform, is near all-time highs, but up less than 1% over the last month. But the Nasdaq (purple line), has risen 2.8% in the last month and has strung together a string of new record highs in recent days.  Source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

How Did Those Holiday Sales Go? Key data are due out before the market open on Friday, with both December retail sales and producer price index (PPI) numbers on the way. Retail sales, which rose 0.1% in November, are expected to accelerate to a 0.7% gain in December, according to a Briefing.com survey of analysts. That would get the metric back toward the sort of strong growth we’d been seeing in September and October, and might provide a sense of how the holiday shopping season turned out. As we noted yesterday, it’s worth keeping an eye on the “e-retailing, non-store sales” aspect of the report, because it could hint whether more customers abandoned brick and mortar stores for the web during the holidays. Also, automobile sales were a drag on total retail sales in November, but automakers reported a relatively strong December, conceivably putting a different spin on things heading into this report.

Price Points: November’s PPI showed a 0.4% rise for both overall and core PPI, a relatively high level. Some analysts see signs of rising inflation in the economy, and Friday’s report may or may not reinforce that thinking. Overall PPI is expected to have risen 0.3% in December, but core only rose 0.1%, according to a survey of analysts by Briefing.com. Those numbers seem rather tame if they’re indeed what the report shows. And don’t forget, next Wednesday’s consumer price index (CPI) is also on the way.

Financial Sector Earnings Could Set Tone: Friday’s troika of big financial sector earnings from Bank of America (BAC), JP Morgan (JPM), and Wells Fargo (WFC), all coming before the open, could set the tone for the earnings season ahead. Recall that Q3 financial quarter earnings were strong, helping prepare the stage for the broad market rally we saw in November and December. Once again, financial earnings could be robust in Q4, with research firm CFRA expecting a 14.5% earnings-per-share growth for the sector. That would bring the sector’s 2016 EPS growth to 8.8%, CFRA said, and the firm expects the sector to do even better from an EPS perspective in 2017, with 11.9% growth. What’s driving this? For investment banking, it seems to be partly a story of strong trading volume, and the earnings data give investors a look at Q4 volume. Overall, traders seem to be really setting up for the bank earnings tomorrow, hoping they provide a better picture of the overall economy and maybe more importantly, the bank CEOs’ views of the future economy.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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