by Ian Harvey
August 01, 2015
The week ahead in the stock market will likely continue, as previously, at a snail’s pace, but still sliding upwards.
There will be another packed week of earnings, with 1187 companies reporting, including 90 S&P 500 members, including Dow titan Walt Disney, electric vehicle maker Tesla Motors Inc, and a slew of other high-profile names.
As well, the week ahead in the stock market will see jobs data trickle in, culminating in the highly anticipated nonfarm payrolls report on Friday.
Besides jobs, there are a few other important economic reports expected, including auto sales, personal income and spending, and ISM manufacturing data.
If the payroll report is as expected then a continuation of the directionless market, that has kept the S&P 500 trading in place for most of the year, will be likely.
Should July post strong job gains, it would point to an economy strong enough for the Federal Reserve to raise interest rates for the first time in almost a decade.
Surprisingly, with a month that has been marked by volatility around Greece and China, selloff in commodities and mixed economic data that raised concerns about growth, the major U.S. averages posted weekly and monthly gains.
The past week saw stocks higher, but was relatively subdued when compared to the action in currencies, fixed income and commodities markets.
The Dow was up 0.7 percent for the week, to 17,690.46, and up 0.4 percent for the month. The S&P 500 was up 1.2% at 2,103.92, whilst the Nasdaq finished at 5,128.28, up 0.8 percent.
For July, the SPX jumped 2%, while the COMP rallied 2.8%.
The CBOE Volatility Index (VIX) was down 11.8% for the week at 13.74 -- and surrendered 33.5% on the month.
The Rate Rise
There is a great deal of speculation as to when the Fed will raise the rates. The central bank's near-zero interest rate policy has buoyed stocks in recent years and many fear a rate hike will send markets lower. At the end of its two-day meeting Wednesday, the Fed said it would keep rates near zero.
However, it seems that the majority on Wall Street anticipate a rate rise in September, although that majority has dwindled from the last survey.
The weak wage report last week has caused a shift in economists’ views as to a September rate hike. The Fed earlier in the week had assured markets it still wanted to boost rates this year, but that it was still watching the data in making its decision. Also, the central bank has not seen the inflation it wants; though the Fed noted that it was "reasonably confident" inflation would move toward its 2 percent target.
The next two jobs numbers will determine whether the Fed goes ahead with the September rate hike.
Stuck in Snail Mode
The S&P 500 has not deviated from the 2,100 level that it set six months ago by more than 3 percent on the downside or 2 percent higher. Its 100-day moving average is 2,096 and it has been effectively flat for a full month.
There has been a major flow of money from U.S.-based domestic-focused stock, but this has been balanced by stock purchases from companies themselves, which are on track to break the buyback record set last year.
This pile of money, found in both the bullish camps and the bearish camps, is basically causing a stalemate in the stock market, which may see the S&P 500 stuck in a tight range for the rest of the year.
A definite catalyst is required to shake the market out of its complacency – and move from snail mode! Maybe the catalyst will present itself during the week ahead in the stock market.
It has been strongly suggested that building positions in hard commodities — such as gold and oil – would be advisable based on history.
In studying the markets parallels to the 1999 market pattern, at the moment gold appears to be providing an opportunity, as it is extremely cheap before the first rate hike is undertaken. This scenario may take a similar path that was experienced in 1999 with the first rate hike then, which ultimately became gold’s bear-market secular low one month later.
Building positions in hard commodities -- such as gold and oil – before the Fed hike, may see the development of a tailwind, similar to that experienced 16 years ago.
Economic Drivers for the Week Ahead in the Stock Market
• June personal income and personal spending figures.
• The Markit purchasing managers manufacturing index (PMI).
• The Institute for Supply Management (ISM) manufacturing index - markets expect for July an unchanged number compared to June. Any significant deviation of the actual outcome should move markets. One risk to the downside is possible repercussions from the stock market crash in China.
• Construction spending.
• Auto sales data for July -- analysts expect the U.S. automakers to report a seasonally adjusted annual rate of 17.20 million units in the month from June's 17.16 million units.
• Also on Monday morning, Federal Reserve Governor Jerome Powell will make a speech in Washington, D.C.
• Greek markets are expected to reopen.
• Factory orders for June -- the Commerce Department's figures on new orders for manufactured goods is expected to have increased 1.8 percent in June after a drop of 1.0 percent in May.
• The ADP employment report -- likely to show U.S. private employers added 215,000 jobs in July, down from a previous month's 237,000 jobs.
• The latest international trade data.
• The ISM non-manufacturing index
• The regularly scheduled crude inventories report.
• Weekly jobless claims data
• The highly anticipated nonfarm payrolls report -- economists expect 225,000 nonfarm payrolls, an unchanged unemployment rate of 5.3 percent and an increase in average hourly wages of 0.2 percent, according to Thomson Reuters.
Earnings for the Week Ahead in the Stock Market
The flow of earnings will continue to pour in for the week ahead in the stock market, with 1187 companies reporting, including 90 S&P 500 members being set to report.
The earnings picture is not very clear due to a combination of Energy sector weakness, a strong U.S. dollar and anemic global growth -- particularly in China and other emerging markets -- and a similar theme in the ongoing Q2 earnings season as with the previous quarter, is apparent. Growth is hard to come by, few companies are able to meet consensus revenue estimates and guidance continues to be on the weak side, causing estimates for the current period to come down. As of July 31st, there have seen Q2 result from 354 S&P 500 members; accounting for 78.0% of the index’s total market capitalization. Total earnings for these companies are down -2.5% on -4.4% revenue losses, with 69.9% beating EPS estimates and 50.4% coming ahead of revenue expectations.
Companies Reporting in the Week Ahead in the Stock Market
Monday: Clorox, Diamond Offshore, Allstate, AIG, Vornado Realty, Amerigas Partners, Community Health Systems, Tenet Healthcare, NextEra Energy, CAN Financial, Tyson Foods.
Tuesday: Disney, Activision Blizzard, AXA, Aetna, CVS Health, Pioneer Natural Resources, First Solar, Zillow, Dreamworks Animation, Toyota, Archer Daniels Midland, Coach, Kellogg, Regeneron, Norwegian Cruise, Beazer Homes, Time Inc, Sprint, Charter Communications.
Wednesday: Time Warner, SodaStream, Spark Therapeutics, Wendy's, CBS, Keurig Green Mountain, Weight Watchers, Zulilly, Tesla Motors, Fitbit, Virtu Financial, Kate Spade, Lumber Liquidators, Discovery Communications, Ralph Lauren, Chesapeake Energy, Liberty Media, Motorola Solutions.
Thursday: Viacom, Mylan Labs, Michael Kors, AMC Networks, Duke Energy, Molson Brewing, Viacom, 3-D Systems, Wingstop, Zynga, Lions Gate, SeaWorld, NY Times, OM Asset Management, Generac, Becton Dickinson, Con Ed, EOG Resources, Mohawk, Shutterstock, Clovis Oncology, TrueCar.
Friday: Berkshire Hathaway, Allianz, Hershey, BioCryst Phama, Cablevision, Groupon, Brookfield Asset Management, Sirona
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:-
Clorox -- expects solid numbers
Denny's -- last quarter, Denny's reported a dramatic upside surprise thanks to the price of oil dropping and more positive moves are expected.
CVS Health -- the second-largest U.S. drugstore operator, is likely to report second-quarter sales above analysts' average estimate. The company, which recently made multi-billion acquisitions of healthcare services firm Omnicare Inc and Target Corp's pharmacies and clinics, reduced its full-year profit forecast to reflect a reduced share buyback target.
Regeneron -- bolstered by strong demand for blockbuster eye drug Eylea - is set to report better-than-expected adjusted second-quarter profit for the first time in six quarters
Disney -- expected to report third-quarter profit above the average analyst estimate. Disney's quarterly results will include gains from the release of second film in the "Avengers" series - "The Avengers: Age of Ultron". The company is also expected to rake in higher revenue in its park and resorts business unit, helped by the onset of summer break in June.
Ralph Lauren -- is expected to report a drop in first-quarter profit and sales. Ralph Lauren's sales have suffered due to intense competition from fast-fashion retailers, the stronger dollar and weak demand for its clothes in its biggest market, North America.
FitBit -- expected to post a revenue above Wall Street expectations in its first-quarter report as a public company. Fitbit is expected to benefit from strong demand in the U.S. connected activity tracker market, in which the company has an 85 percent share.
Molson Coors -- has been grappling with a strong dollar reducing the value of its sales, which are already hurt by weak demand, as consumers increasingly prefer craft beers and wine.
Cablevision Systems Corp -- expected to post a second-quarter profit below Wall Street expectations. Cablevision is expected to post another quarter of video subscriber losses, as telecom companies continue to eat into its subscriber base with competitively priced internet and satellite TV packages.
Conclusion for the Week Ahead in the Stock Market
There may be some break from the continual pressure that has been caused by the constant rate hike debate, during the week ahead in the stock market – at least until Friday when the jobs report is presented. If the numbers are strong then the respite will be over. It is expected that the weak wage data from last week could continue to influence markets for the week ahead in the stock market.
It is expected that the equity market will continue to be positive, and with a diminution of interest rate expectations, a bounce back is likely in some of the areas that have been most adversely affected -- some of the interest rate-sensitive sectors like REITs and utilities. Those could be expected to underperform in the rising rate environment, but they are subject to very big bounce back possibilities.
Many economists are constructive on the U.S. equity market and are looking for slow growth in the economy, slow reflation and slow entrenchment from the Fed – with earnings to be better in the second half of the year, as there is likelihood the U.S. economy will be a little bit better in the second half than the first half.
There is nothing that would indicate a big top in the market, such as deteriorating economic conditions, arrogance from corporate management teams or fear about the credit cycle – the market moves are dulled due to what is happening in the rest of the world - and this is likely to continue during the week ahead in the stock market, at least for the earlier part of the week.