When Traders will Get to the 'Down and Dirty'

When Traders will Get to the 'Down and Dirty'

18 April 2016, 06:06
Roberto Jacobs
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When Traders will Get to the 'Down and Dirty'

Earnings from big tech, industrials and financial firms should all drive trading in the week ahead, but what traders are waiting for first is the fallout from Doha on oil prices.

The meeting in Qatar this weekend between OPEC and non-OPEC oil producers has been much heralded but was also seen yielding low results. At best, analysts expect a loose agreement to freeze production between Saudi Arabia, Russia and others, with few details or commitments. It may even involve an announcement of a follow-up meeting.

"Doha is important. When you think about it, at best we're going to get what everyone expected. Otherwise, there's no upside. It's a question of whether they match expectations. It will be in line or worse," said Peter Boockvar, chief market analyst at The Lindsey Group. "To me, it's all about earnings for the next two weeks. ... Now you get to the down and dirty — the core of everything going on in the macro world in the first quarter, like China, and what did that mean for corporate profits."

Boockvar said in the past two weeks, the stock market lost some of its correlation to oil, but analysts say it could be a factor if crude declines sharply after the Sunday meeting.

Stocks closed out the week with gains. The S&P 500 (.SPX) was up 1.6 percent to 2,080, and the Dow (.DJI) rose 1.8 percent to 17,897. The top-performing sector was financials, up nearly 4 percent as banks reported earnings. Energy was up 2 percent as oil rose ahead of the Doha meeting but it sold off Friday, as traders locked in profits amid concerns the meeting would not go well. West Texas Intermediate (@CL.1) was up 1.6 percent for the week, settling at $40.36 per barrel, even with a 3 percent decline Friday.

"If we don't get some confirmation of a freeze, some of this (stock) rally could be at risk," said Gina Martin Adams, institutional equities strategist at Wells Fargo Securities.

About a fifth of the S&P 500 companies and 14 of the 30 Dow stocks report earnings in the week ahead.

"What's happened is in the grand scheme of things, every quarter analysts' estimates have come down so far that companies beat them. But when you think about the long-term earnings outlook, that's fairly meaningless because forward-looking estimates have come down as well. They beat, but at the same time reduced their expectations for future earnings growth," said Adams.

Among the companies reporting this week are Goldman Sachs (GS), Morgan Stanley, McDonald's, General Electric, American Express (AXP), Alphabet, Intel (INTC) and Microsoft. As of now, first-quarter earnings are expect to fall 7.8 percent for the S&P 500 companies, according to Thomson Reuters. If the energy sector is not included, the decline would be 2.5 percent. Revenues are expected to be 1.3 percent below last year's levels.

"I think that removing that cloud of uncertainty is critical for that next leg higher for the stock market. Are estimate revisions going to start moving higher? That's what we really are looking for," she said. "Can we establish a trough? ... It should happen now that oil prices have stabilized but there's no guarantee."

The dollar index (.DXY) gained about a half percent for the week and was at 94.71 late Friday.

"I think the dollar is a key to this too," said Adams. The dollar's retreat should have helped first-quarter profits, but she notes some investors are writing off further gains in the greenback. "I'm on the lookout longer term. If the dollar starts to rally again, that could be troublesome."

Besides the rush of earnings news, there are a few economic reports. There are housing starts Tuesday and existing homes sales Wednesday. The Philadelphia Fed survey is Thursday.

Boris Rjavinski, director of rate strategy at Wells Fargo, said the bond market will also be watching what happens to oil in the week ahead. If crude sells off, sentiment could sour and Treasurys could attract buyers.

"I think given that the FOMC meeting is coming up relatively soon, I would expect investors to start thinking forward to what the Fed may or may not say at the end of this month," he said. The U.S. central bank meets April 26 and 27.

The European Central Bank, meanwhile, has a meeting Thursday and holds a news briefing ahead of the U.S. stock market open.

Monday

Earnings: IBM (IBM), Netflix (NFLX), PepsiCo, Morgan Stanley, M&T Bank, J.B. Hunt, Hasbro

8:30 a.m.New York Fed President William Dudley, welcoming remarks

10 a.m. NAHB survey

12:30 p.m. Minneapolis Fed President Neel Kashkari

7 p.m. Boston Fed President Eric Rosengren

Tuesday

Earnings: Goldman Sachs (GS), Johnson & Johnson, UnitedHealth, Harley-Davidson, Kansas City Southern, Northern Trust, TD Ameritrade, Intel, Yahoo (YHOO), Discover Financial, VMWare, Intuitive Surgical, Philip Morris, Omnicom (OMC)

8:30 a.m. Housing starts

Wednesday

Earnings: American Express, Coca-Cola (KO), Abbott Labs, EMC, SLM, F5 Networks, Mattel, United Continental, Qualcomm, Stryker, Las Vegas Sands, Tractor Supply, Yum Brands (YUM), U.S. Bancorp, Illinois Tool Works, Canadian Pacific, St. Jude Medical

10 a.m. Existing home sales

Thursday

Earnings: Alphabet (GOOGL), Microsoft, General Motors (GM), Visa (V), Starbucks, Bank of NY Mellon, Biogen, Under Armour, Southwest Air, Stanley Black and Decker, Imax, Novartis, Union Paicific, DR Horton, Fifth Third, Johnson Controls, Pulte Group, Polaris, Alaska Air, Verizon, Travelers, ETrade, Norfolk Southern, Boston Beer

8:30 a.m. Initial claims; Philadelphia Fed survey

9 a.m.FHFA home prices

Friday

Earnings: General Electric (GE), Caterpillar, McDonald's (MCD), Honeywell, AutoNation, American Airlines, Synchrony Financial, Kimberly-Clark, SunTrust, Lyondell Basell, Steve Madden (SHOO), Daimler

9:45 a.m.Manufacturing PMI



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