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What Dog Days of Summer? Earnings, Economic Reports, Fed Barking Too

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July 24, 2017

(Monday Pre-Market Open) Investors might be bracing themselves for a wild summer ride this week when a cavalcade of some of the biggest S&P 500 companies get in line to report earnings, coupled with a Federal Reserve meeting likley to include a decision on interest rates and, there’s more, a boatload of key economic reports.

Where to start? Monday morning’s existing homes sales could offer some insight into the ups and downs of the housing market in recent months. In April, sales fell unpredictably deeper than expected, only to go up surprisingly higher than forecast in May. Let’s see what June had to offer.

Other economic reports investors might want to keep an eye out for this week are durable goods orders on Thursday and the all-important gross domestic product (GDP) number on Friday. Durable goods orders, which fell for the second straight time in May, can offer clues to how companies are spending on products expected to last more than three years—or whether they’re even opening up their checkbooks. Last month’s pullback was widely attributed to sharp declines in military aircraft and civilian airplanes and parts, which some analysts said was purely seasonal. We’ll see when June’s numbers come out.

We’ll already know what the Fed’s decision on raising interest rates was by the time GDP numbers come, but remember that the economic health of the country, as defined by GDP, is one of the a primary drivers behind the Fed’s redlight/greenlight choice on interest-rate hikes. The Conference Board’s Leading Economic Index reported last week indicated that an uptick in GDP may be in the offing in the second half.

Speaking of the Fed, the Federal Open Markets Committee’s two-day meetings start Tuesday with a decision on whether rates will rise or stand still is scheduled to be made on Wednesday. The probability of a go by then is nearly nil, according to the CME’s FedWatch Tool. A rate by December is still uncertain too, with a near even-steven probability based on the Fed Fund futures contract prices. (See below.)

Big consumer-driven companies like McDonald’s (MCD), Coca-Cola (KO) and Kimberly Clark (KMB) are opening their books as well as some big hitters in the technology and social-media spaces. They might be a good recap of how consumers are spending their money, not just here but with big multinationals like these companies, abroad as well.

After the close Monday, many retail investors are likely to be watching for Q2 earnings from Alphabet (GOOG), the first of the so-called FAANG stocks to report this week. Facebook (FB) comes to the plate after the close Wednesday. We’ll also hear from the likes of General Motors (GM), Ford (F), Caterpillar (CAT) and Boeing (BA). Verizon (VZ), MGM Grand Casinos (MGM) and Southwest Airlines (LUV) are up at the back end of the week. Friday winds up with big oil companies ExxonMobil (XOM) and Chevron (CVX). As always, listen to the forecasts the chief executives deliver on conference calls for their vision of this quarter and the next.  

The Organized Petroleum Exporting Countries (OPEC) is meeting Monday in Russia and many analysts have said they are anxious to hear how the oil output pullback deal is working and whether all are keeping their promises. (See below.)

Oil prices bounced around last week ahead of the meeting, dropping to fresh session lows Friday amid news that output was poised to climb by 145,000 barrels a day this month, according to a report from Reuters.

oil futures chart

FIGURE 1: WHERE'S OIL HEADED?

Light sweet crude oil futures, tracked through midday Friday on the thinkorswim® platform from TD Ameritrade, ended the week in retreat, losing about 2.5% but are still up better than 5% on the month. Monday’s OPEC meeting may move that needle again. Data source: CME Group. For illustrative purposes only. Past performance does not guarantee future results.

Oil’s Long Tail: Crude oil futures lost their mojo last week amid the ongoing glut of oil that appeared to pressure oil prices ahead of Monday’s meeting of major producers. The Organization of the Petroleum Exporting Countries (OPEC) is scheduled to meet in St. Petersburg, Russia, for unofficial discussions about the OPEC production cap agreement put in place earlier this year and scheduled to expire in March.

“Market focus remains on the global oversupply problem, and the lack of response the market has had to the OPEC and non-OPEC production cap agreement,” said Tyler Richey, co-editor of the Sevens Report, according to MarketWatch. Non-OPEC members Nigeria and Libya are not part of the pact and reportedly have upped their output, which OPEC ministers want to discuss. Russia, by the way, also is not an OPEC member.

Fed Ahead: As noted above, the likelihood of an interest-rate hike is pretty remote, based on the CME Fed Funds futures. But what investors might want to take note of is what language the Federal Reserve uses when it addresses the decision on interest rates. Typically, even one word change can signal a sea change in outlook from the Fed as it addresses the economy. Many analysts have said they expect the FOMC to take a more hawkish view on raising interest rates, considering what Fed speakers have said in recent trips to the dais and Chairwoman Janet Yellen’s recent testimony. But nothing is done until it’s done.

Remember It’s All Just Noise: The three major benchmarks continued to wallow in the red Friday amid the news out of the White House about a shake-up in its communications staff that led Press Secretary Sean Spicer to resign.

Investors likely were interested in what incoming communications director Anthony Scaramucci, a lawyer with a long history on Wall Street, had to say on his first day in the new gig. But let this be a reminder that the noise in Washington, D.C., is not reflective of what happens in the markets. Yes, markets sometimes ebb and flow amid good news and/or chaos out of D.C., but it’s just noise. Not revenues, not earnings, not capital spending, not corporate management. Just noise that traders sometimes might need to just block.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR

Source: Briefing.com

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