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Back to Work: Earnings, Geopolitics Vie For Attention After Long Weekend

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April 17, 2017

(Monday Market Open) After a long weekend of egg painting and matzo crunching, the markets open Monday with international tensions still in the air.

Last week ended on a down note, as traders appeared to take some money off the table before the weekend amid potential geopolitical risk. Futures pointed to a possible mixed open today amid more headlines about Syria and North Korea, with a lot of attention on Vice President Pence’s visit to the Korean Demilitarized Zone.

The rally in bonds last week, which took the 10-year U.S. Treasury yield to its lowest level since November, could signal a flight-to-safety mentality among many investors. It might be interesting to watch if this continues and how it might affect different stock sectors. Defensive parts of the market like health care, consumer staples, and utilities sometimes outperform so-called cyclical sectors when bonds rally amid uncertainty.

Though geopolitics remain front and center, let’s not forget we’re entering the heart of earnings season. From this point on, nearly every day brings results from some big company or other, and perhaps this could help counter the steady drone of politics and international relations. Today brings Netflix (NFLX) and United Continental (UAL) after the close.

Analysts expect a big jump in earnings per share for NFLX, to 37 cents, from 6 cents a year ago, according to Briefing.com. As always, focus is likely to be on subscriber growth and forecasts for future subscriber growth.

Tomorrow morning it’s back to the banks, with Bank of America (BAC) and Goldman Sachs (GS) reporting before the open. Last Thursday seems like a long time ago after the three-day weekend, but the bank earnings we saw that day looked mostly strong, so we’ll see if GS and BAC can continue the trend.

Overnight, Asian stocks were mixed and oil prices fell slightly. Treasuries once again made gains, sending 10-year yields down to around 2.21%. Friday’s weak retail sales and consumer price index (CPI) data (see below) might also be contributing to the bond rally. The dollar fell against the euro and yen, continuing its recent retreat.

While the markets are certainly down since their record highs early last month, keep in mind that they’re not off all that much. In fact, the S&P 500 (SPX) has fallen less than 3% since it hit the 2400 mark on March 1. That signals there’s still some optimism out there, and perhaps a strong earnings season might tap into some of those hibernating bullish feelings. That said, markets tend to dislike uncertainty, and there’s plenty of that right now on the international scene.

U.S. Dollar

FIGURE 1: DOLLAR, STOCKS LEVEL OFF TOGETHER.

The U.S. dollar, tracked here through last Thursday on the thinkorswim® platform from TD Ameritrade, weakened last week after President Trump said the dollar is too strong. The S&P 500 (purple line), which had risen along with the dollar after the election and continued rising in February and March, has leveled off along with the dollar lately. Data source: Standard & Poor’s, CME. For illustrative purposes only. Past performance does not guarantee future results.

Could April Be Less Cruel For Retail Sales? Disappointing March retail sales released Friday marked the first time in two years that this metric declined in consecutive months. However, slumping retail sales early in the year fit with the recent pattern looking back at 2015 and 2016. Both those years saw mostly weak retail sales during the cold months that recovered with spring warmth. For instance, retail sales climbed more than 1% in April 2016 following a slide in March, and retail sales were mostly strong in the spring months of 2015 as well, with the exception of a flat April. The question is whether this year could also see a sales pick-up, particularly when you keep in mind that March was a chilly month marked by big snowstorms in major population centers of the northeastern U.S. That means the April and May numbers may take on more significance.

Look Out — More Data on Way: After all the disappointing data lately, including weak jobs growth, falling retail sales, and falling consumer prices, it may seem hard to look forward to additional economic data this week. However, there’s no getting around it, and at least this time some of the key data include housing, a sector that’s been pretty robust lately. Housing starts and building permits for March both come out before the open Tuesday, and predictions look mixed. Starts are projected to fall to a seasonally adjusted 1.26 million, according to a consensus of Wall Street analysts posted by Briefing.com. And building permits are seen rising to a seasonally adjusted 1.24 million. New home prices have been rising quickly, partly due to tight supplies. The numbers tomorrow could indicate if the housing industry is responding to demand for new homes, or perhaps if that demand might be waning.

Soft Economic Data Contrasts With Oil Strength: All the recent disappointing economic data may be somewhat belied by the oil market, which steadily moved upward last week. Oil got some of its boost from a production problem in Libya, but seasonally this is also a time of year when oil and gas prices often move higher. Though recent economic data point to possible softness in the economy, a rising oil market might signal continued strength.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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JJ Kinahan

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