The Week Ahead In The Stock Market
  -Week Beginning 21st September, 2015 -
Some Thoughts, Possibilities and Probabilities!

by Ian Harvey

September 19, 2015

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Introduction

During the week ahead in the stock market, strategists believe that the volatility we have been experiencing will continue, as the Fed announcement about keeping rates as they are sends a clear message that the concerns that have been occurring are not over yet. With overseas concerns – China particularly – and more expected negative earnings revisions, as we go into the next earnings season – data flow coming out on the domestic economy will be very important.

The central bank will remain the central focus point for the week ahead in the stock market with Fed Chair Janet Yellen slated to take the mike, as investors will be seeking clarity after the post-Fed battering. Xi Jinping will also be a focus point in his comments regarding the Chinese situation.

Also, another reading on second quarter GDP on Friday will highlight this week’s economic calendar as traders and analysts survey the fallout from the Fed’s decision to hold off on an interest rate hike. Also expected are reports on existing home sales Monday, and new home sales on Thursday, with durable goods Thursday, and consumer sentiment on Friday.

A light earnings calendar is also expected, though Dow component Nike Inc (NYSE:NKE) and mobile mogul BlackBerry Ltd (NASDAQ:BBRY) will be among the featured stocks reporting earnings.

Past Week

The past week saw, not only the Fed meeting announcement results – which seemed to trigger negative sentiment as experienced Friday -- but also volatility due to quadruple witching on Friday, the expiration of three related classes of options and futures contracts, as well as individual stock futures options.

The Dow and Russell 2000 closed in correction territory, or more than 10 percent off its 52-week high. The S&P 500 and Nasdaq composite are about 8 percent below their 52-week highs.

The Dow was down 0.31 percent for the week, to 16,384.79. The S&P 500 was down 0.2% at 1,958.08, whilst the Nasdaq finished up 0.1%, 4,827.23.

The CBOE Volatility Index (VIX - 22.28), widely considered the best gauge of fear in the market, ended the week down 4.0%.

Other News

The Fed

Fed Chair Jane Yellen speaks at the University of Massachusetts on Thursday evening, and could offer some reassurance on what ails markets—the fear that economic growth and financial weakness in China is worse than expected and that it could spread elsewhere, including to the U.S.

China

There will be a great deal of focus on any data from China during the week ahead in the stock market.

Markets were shaken by the Fed's concerns that China could have a broader economic impact, even though markets were already rocked this summer by those same fears.

Chinese President Xi Jinping will be in the U.S., meeting with business leaders Wednesday and President Barack Obama on Thursday. He will be watched closely for any comments on the economy and how genuine these comments are. One of his important messages is going to be just to reassure people that the Chinese economy is slower but not weak and is not a source of instability, and that policymakers have a steady hand and know what they're doing.

Commodity prices are affected due to China's slowing which filters through to the U.S. economy. Emerging markets also bring deflation from falling commodities prices.

China has been looking to reform policy but it has been criticized for using a heavy hand in markets it is trying to open up, and traders have been skeptical that the country's economic reports are not trustworthy.

Economic Drivers for the Week Ahead in the Stock Market

The third and final reading on second quarter GDP is out Friday and the number will surely be dissected by analysts – and Fed policy makers – seeking evidence that the U.S. is economy is growing.

The last reading, released in August, showed that the U.S. economy grew faster than initially thought in the second quarter on solid domestic demand. GDP expanded at a 3.7% annual pace, according to that reading, instead of the 2.3% rate reported in July, the Commerce Department said in its second GDP estimate for the April-June period.

Analysts believe the third reading will likely tick higher to 3.8% growth in the second quarter.

Also on the same day, the University of Michigan's final figure on the overall index on consumer sentiment is expected to rise to 87 in September, compared with the preliminary reading of 85.7.

On Monday, the National Association of Realtors releases U.S. home resales data for August. Existing home sales are expected to have dropped 1.3 percent last month after rising to an eight-year high in the previous month.

Separately, financial data firm Markit issues its preliminary number of Manufacturing Purchasing Managers' Index for September on Wednesday. The Commerce Department, on the same day, will release data for non-defense capital goods orders, excluding aircraft, a closely watched proxy for business spending plans.

The U.S. Federal Housing Finance Agency home price index is due on Tuesday.

Earnings for the Week Ahead in the Stock Market

The Q3 earnings season is the next major development for the market.

The earnings season has already started and the early reports from likes of FedEx (FDX), Oracle (ORCL) and Adobe (ADBE) are pointing towards a repeat of what we saw in the Q2 earnings season when growth was in the negative and companies overwhelmingly guided lower. All of these early reporters have fiscal quarters ending in August, which are counted as part of the 2015 Q3 tally.

More reports are due during the week ahead in the stock market, with a total of 30 companies reporting results, including 12 S&P 500 members.

Companies Reporting in the Week Ahead in the Stock Market

Monday: Lennar (LEN), Red Hat Inc (RHT)

Tuesday: AutoZone (AZO), Carnival (CCL), Carmax (KMX), ConAgra (CAG), General Mills (GIS), Darden Restaurants (DRI)

Wednesday: Steelcase, Worthington Industries

Thursday: Nike Inc (NKE), Accenture (ACN), KB Home (KBH), Bed Bath & Beyond (BBBY), Pier 1 Imports (PIR), Jabil Circuit

Friday: BlackBerry (BBRY), Finish Line (FINL)

For a full list of companies reporting in the week ahead for the stock market …..CLICK HERE…..

Conclusion for the Week Ahead in the Stock Market

The Fed announcement has added to market uncertainty instead of lowering them, due to the fact that doubts have been raised about the U.S. economic outlook, whereas previously the overall steady stable state was taken for granted.

However, the Federal Reserve's decision has provided an opportunity in a couple of sectors -- dividend payers and housing stocks.

With 10-year Treasuries now yielding around 2.14 percent, the 2.2 percent dividend yield of the overall S&P 500 should appeal to income-hungry investors who are convinced interest rates will stay low for a while.

Utilities and real estate investment trusts (REITs) have gained ground since the Fed announced its decision. The S&P utility index, though down slightly on Friday, was the best-performing sector since the Fed announcement.

It is also suggested that instead of just buying dips, it is also prudent to sell rallies.

Another area of the market that could benefit is the housing sector, with prospects of continuing low rates helping mortgage seekers, and during the week ahead in the stock market, reports on existing and new home sales could move stocks like Lennar or PulteGroup.


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