by Ian Harvey
July 19, 2015
The week ahead in the stock market will see about a quarter of S&P 500 companies and more than one-third of the Dow 30 report earnings, and that could be a positive catalyst for stocks as worries about Greece and China fade into the background.
With the situation in Greece now a little more stable, the equity market has been riding high, led by tech names, and could rise further on the back of a strong set of earnings reports from the big tech companies.
Google Inc's strong quarterly results, which unleashed a massive surge in its shares on Friday, has investors feeling upbeat heading into the week ahead in the stock markets with the tech-heavy slate of earnings reports.
Among the numerous tech companies that will be releasing earnings are International Business Machines, Microsoft Corp and as usual, a lot of attention will be focused on Apple’s release on Tuesday, all of these are expected to show growth.
Among the other bellwether companies set to release in the week ahead are: Morgan Stanley, Halliburton and IBM on Monday; Bank of New York Mellon, Chipotle Mexican Grill, Verizon Communications, and Yahoo! on Tuesday; Coca-Cola and Texas Instruments on Wednesday; and Amazon.com on Thursday.
Wall Street analysts expect earnings of the S&P technology sector to grow by 2.7 percent for the second quarter.
There is very little economic data for the week ahead in the stock market, but there are reports on Existing Home Sales on Wednesday, followed on Thursday by the Chicago Fed national Activity Index, Leading Indicators and the Kansas City Fed Manufacturing Index. Then on Friday the PMI Flash Manufacturing Index and New Home Sales will be presented.
The dollar, commodity nexus is going to be the next thing investors will start focusing on in the absence of economic data. The dollar should be supported by expectations for firmer rate policy, compared with the euro zone and Japan.
The past week saw stocks close out the week with gains after Greece accepted austerity measures required for its bailout. There was also a pickup in Chinese data and Shanghai shares ended the week higher.
The Dow added 1.8 percent for the week, to 18,086.45. The S&P 500 was up 2.4% at 2,126.64, whilst the Nasdaq finished at 5,210.14, up 4.3 percent.
The CBOE Volatility Index (VIX) slid 0.2 point, or 1.3%, for its lowest close since 5th December. On a weekly basis, the market's "fear gauge" surrendered 29%. The tech-heavy Nasdaq Composite Index had a new closing high due to the massive earnings-related weekly gains by Google Inc. (GOOGL) and Netflix Inc. (NFLX).
Other News for the Week Ahead in the Stock Market
The Greek Situation Still
Greece is due to make its 3.5 billion euro plus interest payment to the European Central Bank. German lawmakers voted in favor of Berlin starting negotiations on a third bailout program for Greece, but a sizeable minority opposed the talks, in a setback for Chancellor Angela Merkel.
Also, Greek banks are expected to re-open after they get permission from the central bank and the government. Banks have been closed since June 29 after Athens imposed capital controls.
The Rate Rise
The central bank's chair, Janet Yellen, testified for two days before Congress this past week, and emphasized that the Fed could raise rates this year, depending on the economic data.
While most economists expect a September rate hike, the market has stubbornly priced in a later rise and some bond market participants don't see a rate increase until next year.
Economic Drivers for the Week Ahead in the Stock Market
The economic focus for the week ahead in the stock market will be on home sales data and home price index numbers.
There are several other reports to be announced:-
• Data on home resales, due on Wednesday, is likely to show a 0.9 percent increase to an annual rate of 5.40 million units, compared with the previous month's 5-1/2-year high figure. The National Association of Realtors showed existing home sales increased 5.1 percent to an annual rate of 5.35 million units in May.
• Data for the home price index is due on Wednesday.
• The numbers for the index of mortgage application activity from the Mortgage Bankers Association is also due on Wednesday.
• New U.S. home sales data, due Friday, is expected show a 0.1 percent fall to a seasonally adjusted annual rate of 545,000 units.
• Financial data firm Markit will release its preliminary Manufacturing Purchasing Managers' Index on Friday.
Earnings for the Week Ahead in the Stock Market
The markets will switch focus to earnings for the week ahead in the stock market, with bellwethers including IBM, Apple and Microsoft headlining a big week for results with 499 companies reporting, including 124 S&P 500 members being set to report.
So far, just several dozen companies have reported, and the usual 70 percent-plus beat on the top-line, while just about half beat on revenue. Coming into this earnings reporting period, analysts' sentiment was negative, but the reaction to earnings has been relatively good as of late. There have been more downward revisions than upward revisions, and typically when this occurs in a reporting period, the market performance is much better than when you see analysts upping their estimates.
The overall earnings have been better than expected except in the energy sector, where the continued decline in crude oil prices has been in line with the negative technical readings from the end of June. Even some disappointing economic reports did not deter the buyers who apparently decided they had sold too much because of concerns over Greece and the Chinese stock market.
Big-name tech companies have provided the two biggest reactions from investors in this reporting season. After Netflix reported stronger-than-expected subscriber growth on Wednesday, its shares increased 18 percent, while Google's results triggered the biggest one-day move in the stock in more than seven years, as shares surpassed $700 for the first time ever.
Commodities may be the drawback for the week ahead in the stock market, and the question that arises is, “how far will these go down?” Maybe it is due to fundamental reasons or it may be caused by some financial investors getting out of commodities because they don't look so good with the rise in short-term rates in the U.S.
Companies Reporting in the Week Ahead in the Stock Market
Monday: IBM, Morgan Stanley, Hasbro, Halliburton, Canadian National Railway, Bancorp South, Crown Holdings, BBCN Bancorp, Cal-Maine Foods, Steel Dynamics.
Tuesday: Apple, Microsoft, Yahoo, Chipotle Mexican Grill, United Technologies, Travelers, Novartis, Bank of NY Mellon, Lockheed Martin, Fifth Third, Verizon, TD Ameritrade, ManPower Group, Canadian Pacific Railway, GoPro, Intuitive Surgical, Linear Technologies, iRobot
Wednesday: Coca-Cola, Boeing, American Express, Abbott Labs, Texas Instruments, Cheesecake Factory, Discover Financial, SanDisk, Qualcomm, Fortune Brands, Raymond James, Newmont Mining, Ameriprise, Cirrus Logic, Graco, Sallie Mae, Select Comfort, Morningstar ,Weatherford, Xilinx, F5 Networks, St. Jude Medical, Six Flags, AutoNation, Tupperware, Owens Corning
Thursday: Caterpillar, Eli Lilly, Amazon.com, General Motors, Comcast, McDonald's, Starbucks, Visa, Capital One, Bristol-Myers Squibb, Union Pacific, Roche Holdings, Dow Chemical, Celgene, Credit Suisse, Dr. Pepper Snapple, Alaska Air, Southwest Air, Dunkin Brands, Pulte, Raytheon, Freeport-McMoran, Stryker, Nasdaq OMX, Kimberly-Clark, Stryker, Pandora, Flextronics, Ruby Tuesday
Friday: Biogen, Johnson Controls, State Street, Xerox, Moody's, Cabot Oil and Gas, Spirit Airlines, American Airlines
For a full list of companies reporting in the week ahead for the stock market …..CLICK HERE…..
Stocks to Consider for the Week Ahead in the Stock Market
Companies to consider for Trading for the week ahead in the stock market, such as “Options Trades” – calls or puts -- this week are:-
IBM -- is expected to report second-quarter results slightly below analysts' average estimate. The company's revenue has been shrinking as it sheds low-profit businesses such as cash registers, low-end servers and semiconductors and focuses on emerging areas such as security software and cloud services.
Morgan Stanley -- will report results for the second quarter. Although executives across Wall Street said mid-way through the quarter that trading activity was muted, market volatility toward the end of June and a number of big mergers may have helped Morgan Stanley's institutional business, while analysts expect the wealth management business to keep churning out steady profit margins of 20 percent or more.
Apple -- posts third-quarter results on Tuesday. The iPhone maker is expected to report revenue and profit above estimates, helped by strong sales of its flagship phone. Apple sold 61.2 million iPhones in the second quarter.
Yahoo -- posts second-quarter results on Tuesday. The online search and advertising company is expected to report earnings slightly above analysts' estimate. Yahoo has been struggling to revive revenue growth with acquisitions and product revamps as its once-hot web portal and email service have lagged those of rivals such as Google and Facebook.
Coca-Cola -- is likely to report second-quarter revenue above analysts’ average estimate on Wednesday. Coke has called 2015 a transition year as it attempts to figure out how to increase soda sales.
Boeing -- posts second-quarter results on Wednesday. The company on Friday said it would take a $536 million after-tax charge related to its aerial refueling tanker for the U.S. Air Force. The commercial aircraft business will still show strong underlying growth, after delivering 381 commercial jets in the first half, more than half of its annual target of 750-755 jets.
Caterpillar -- is scheduled to release second-quarter earnings on Thursday. Hurt by downturns in the previously profitable mining sector, the company has made labor cuts in both U.S. and international factories. Last quarter, CEO Doug Oberhelman said the remaining 2015 quarters' sales and profit will be lower than the first quarter.
Amazon.com -- is expected to report second-quarter revenue marginally above estimates, helped by growth in Amazon Web Services and sales in North America. The company broke out financial details of its cloud computing unit, a $5 billion business, for the first time last quarter. Amazon is expected to continue to report a loss, as it invests in products and services that range from Hollywood-style television productions to drone delivery and streaming video-calls.
General Motors -- reports second-quarter results on Thursday. Car sales in China have slowed sharply posing a challenge to the Detroit automaker, which has counted on sustaining 9-10 percent profit margins in China to offset weak performance in other markets outside the United States. Barclays this week cut its rating on GM to "equal weight" from "overweight" and predicted GM management would have to lower its mid-term targets for China. GM also has trimmed production in Europe.
Comcast -- the largest U.S. cable TV provider, reports second-quarter earnings on Thursday, as the pay-TV market continues to grapple with stagnation. Wall Street will be keeping a close watch on Comcast's video and broadband subscriber metrics.
Xerox -- which has been shifting its focus to IT services from making printers and copiers, is expected to report second-quarter results on Friday that are slightly below Street expectations, according to analysts. Xerox, which gets about a third of its revenue from outside the United States, is also expected to be hurt by a strong dollar.
Conclusion for the Week Ahead in the Stock Market
The conditions for a good second half is showing better visibility due to earnings, and it is expected the consumer will help generate gains for stocks in the second half, as the benefits from lower oil should finally kick in.
It is also expected that the economy will strengthen as the year goes on and that stocks are the preferred place when it comes to investing money. As a comparison, at this stage the S&P 500's yield is not all that different than the 10-year Treasury, 2.15 percent for the S&P and 2.35 percent for the 10-year Treasury. And many analysts expect to see the market doubling its current 2015 gain of 3 percent by year-end.