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The Economy and Earnings in the Week Ahead
June 18, 2012



Week Ahead: Important Earnings to Watch – FDX and ORCL

U.S. Economy vs. Greek Elections!



By Ian Harvey

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The Key Events in the Week Ahead



economy

Earnings in the Week Ahead

This is the last important week of earnings for the quarter.

Two reports that are important – FedEx (FDX) and Oracle (ORCL) – discussed in more detail below.

Healthcare Decision -- Influence on Earnings

The arguments, surrounding the constitutionality of the healthcare reform bill (as discussed below in this article), and result will affect the healthcare universe in shares of hospital operators, who would be forced to struggle on how to deal with indigent patients.

It's clearer with shares of companies that provide Medicaid insurance because they would lose the chance to insure upwards of 30 million patients.

Shares of Centene (CNC), a Medicaid insurance provider, were up 21% for the year through March 28, the last day of oral arguments before the court. They're down 41% since. The decline is not entirely due to speculation on the court ruling. The company cut its full-year earnings forecast on weak results on some of its health plans. It also expects a second-quarter loss.


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Economy in the Week Ahead -

Here is a brief list of some of the key events in the week ahead.

All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.

Monday

Earnings: No major earnings events on the day's calendar.

Economy:

• 10:00 AM NAHB Housing Market Index

Tuesday

Earnings: Barnes & Noble (BKS), Discover Financial Services (DFS) and La Z Boy (LZB). What Barnes & Noble has to say about its Nook business is important.

FedEx (FDX) reports on Tuesday. This is a leading-indicator for stock because if shipments are rising, so is the economy. Shares peaked at $96.98 in February and are off 9.6% since. But like the major averages, it has bounced higher since early June. Listen to the company's description about business to and from the United States and Asia and business in Europe.

Analysts are expecting $1.92 in earnings, up from $1.75 a year ago, with revenue up 5.5% to $11.1 billion.

Jabil Circuit (JBL) is also scheduled to report earnings on Tuesday. There are high hopes for the company.

This contract manufacturer, meaning they make products for other companies, has been pigeonholed as a tech play, but they make a ton of other stuff in different industries, including health care and that's smoothed out any disappointments.

Should Jabil’s earnings disappoint, though, many tech stocks may fall in response.

Economy:

• 8:30 AM Housing Starts

• 8:30 AM Building Permits

Wednesday

Earnings: Bed Bath & Beyond (BBBY), hamburger-chain Sonic (SONC) and office-furniture maker Steelcase (SCS).

Red Hat (RHT) will also announce earnings on Wednesday. Typically, Red Hat’s stock sells off on expectations that the underlying company won’t meet Wall Street’s earnings expectations. If the company does meet expectations, though, the stock tends to rise sharply.

A recommendation for investors is buy deep-in-the-money call options to include weakness ahead of the quarter, but then sell them after the company reports.

Economy:

• 7:00 AM MBA Mortgage Index

• 10:30 AM Crude Inventories

• 12:30 PM FOMC Rate Decision

Thursday

Earnings: ConAgra Foods (CAG)

Oracle (ORCL) reports after Thursday's close. The company is a good indicator of how corporate decision makers view the world. The word on Wall Street is that this tech company is doing well; despite having exposure to Europe.

Oracle shares peaked at $30.24 on March 5 and fell 15% through May 18. They're up 7.7% since.

Auto dealership operator CarMax (KMX) will post its earnings results on Thursday. It appears that car buyers have been driving the U.S. economy lately. After all, building and selling cars involves a lot of people and that means jobs. He’s interested to see what executives have to say about the state of the industry.

Economy:

• 8:30 AM Initial Claims

• 8:30 AM Continuing Claims

• 10:00 AM Existing Home Sales

• 10:00 AM Philadelphia Fed

• 10:00 AM Leading Indicators

• 10:00 AMFHFA Housing Price Index

Friday

Earnings: Darden Restaurant’s (DRI) -- Although the restaurant chain operator has benefited from lower gas prices and tempered food inflation, the worry is that the stock has run up too much lately -- expectations are just too high for the company!

Economy:

• 8.30 am Empire State survey

• 9.00 am TIC data

• 9.15 am Industrial production

• 9.55 am Consumer sentiment



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Economic Reports to Watch in the Week Ahead

1. National Association of Home Builders Housing Market Index -- due Monday -- this is a measure of builder confidence both in the short-term and long-term.

2. Housing starts and building permits for May from the Commerce Department -- due Tuesday -- starts may dip from April, if only because building permits in April fell. Watch the permits.

3. Jobless claims from the Labor Department -- due Thursday -- look for little change, which means about 380,000. That means employers aren't hiring much, but they're not laying off much either.

4. Existing-home sales, from the National Association of Realtors -- due Thursday -- look for a small decline, Nomura Securities analysts say after a decline in pending home sales in April.

5. Philadelphia Fed Survey, from the Federal Reserve Bank of Philadelphia -- due Thursday -- this index, which measures manufacturing activity in the bank's service area, fell in May. It may rise a little but still be negative due to European problems.

6. Leading Economic Indicators for May, from the Conference Board -- due Friday -- this index should be flat with lower jobless claims and rising building permits giving some support. But lower levels of consumer confidence and a decline in the average work week weighing on the index.

Also due in the week ahead:

The Federal Reserve Two-Day Meeting -- Tuesday & Wednesday -- What many traders want is a signal that the Fed will loosen credit even further soon because of a slowing U.S. economy. It could do this with more asset purchases of Treasury securities and maybe an extension of what's known as Operation Twist. The operation involves selling short-term securities and buying longer-term issues. But the Fed's supply of securities to sell is shrinking.

The Fed has so far said it doesn't want to make a move until it has a really good reason. A very bad sell-off in Europe might well qualify. Slowing job growth would not. The market has reacted by selling whenever the Fed hasn't made a move. That's possible in the latter end of the week.

The Supreme Court ruling on the constitutionality of the healthcare reform bill is due this month. There is speculation the ruling could come Monday. If not, look for June 25.

After three days of oral arguments on the case in late March, the consensus has been that the court may invalidate part or all of the law. The most likely provisions to be struck down in a limited decision: the individual mandate and a requirement that health insurers enroll people regardless of health status

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