Despite some dour data last week, stocks finished in the black as investors and traders bet that the Federal Reserve will see the data as a reason to keep interest rates low and the flow of cheap money going. This busy week could see more of the same.
While the week is sort of shortened by the Columbus Day holiday, there is still a plethora of data being released. Consumer sentiment, retail sales, producer prices as well as key manufacturing data will all be released and all of it will play into the Fed’s decision to raise interest rates, or not as the case may be. Any poor data on any of these fronts could signal that the Fed isn’t going to let rates rise.
Meanwhile, earnings season is now in full swing. This week will see a multitude of reports from various sector bellwethers. While their actual profits will be important, the more crucial piece to earnings season will be guidance numbers. Any poor metrics could signal that the economy is doing worse than expected and as such, the Fed won’t increase benchmark interest rates.
This week traders will keep repeating “bad news is good news” as their mantra.
The stock markets will be open for trading on Monday, however, banks as well as the Federal government will be closed. As such, the release of new data will be nil. Investors should expect low liquidity and volumes as well as irregular volatility as most brokers will take a three-day weekend.
The only thing of value reported is that three different Federal Reserve governors, Lockhart, Evans and Brainard, will give speeches.
- Monday is light on earnings. KMG Chemicals (KMG ) will report earnings before the bell. The specialty chemicals manufacturer is expected to report 35 cents per share in profits. KMG yields 0.57%.
Tuesday is light on economic data as well. The National Federation of Independent Business (NFIB) will release its Small Business Index. The number has almost zero effect on the market and could be discarded by investors. The same could be said for the Department of the Treasury’s Federal Budget Balance.
Earnings season is alive and well as we ramp up the dividend-related reporting.
- At 5 and after the bell, regional financial firm Bank of the Ozarks, Inc. (OZRK ) will report earnings. OZRK is expected to report EPS of 53 cents per share and yields 1.24%.
- Chugging along and into the earning’s station, railroad CSX Corp. (CSX ) will report EPS of 51 cents. The transportation bellwether’s guidance will be critical. CSX yields 2.59%.
- Semiconductor and chip giant Intel (INTC ) should report Q3 earnings of 59 cents per share. Intel yields 3.08%.
- Health care shares could get a boost as Johnson & Johnson (JNJ ) reports its earnings before the bell. Analysts predict that JNJ will report earnings of $1.45 per share. The health care giant yields 3.17%.
- JPMorgan Chase & Co. (JPM ) could set the tone for financial firms when it reports earnings after the bell. As one of the largest banks in the world, JPM’s earnings will be very important. The company should report EPS of $1.37. The bank yields 2.94%.
- Energy sector and midstream stalwart Kinder Morgan (KMI ) is set to report EPS of 19 cents per share. The energy logistics and pipeline firm yields 6.33%.
While the beginning of the week was slow on data, hump day hits investors over the head. To start with is the Census Bureau’s look at retail sales. The agency will release both core, which backs out automobiles, and regular retail sales figures for the previous month. Both metrics have been trending downward over the last few months and have missed analyst expectations. Also released today is the Bureau of Labor Statistics’ Producer Price Index (PPI). The leading indicator of consumer inflation is expected to be flat over last month, indicating zero or near inflation. All of these items will play into the Fed’s hands on interest rates.
In addition to the three big pieces of consumer data, we’ll see a whole slug of earnings data on Wednesday.
- This week continues to be primetime for the largest financial stocks. Up first is giant Bank of America Corp. (BAC ). BAC is set to report earnings of 34 cents per share. The bank yields 1.27%.
- Asset manager and iShares ETF sponsor BlackRock (BLK ) is set to report EPS of $4.66 per share. BLK investors are hoping that more and more portfolios continue to use ETFs to pad its bottom line as well as its 2.78% dividend.
- Flying the friendly skies Delta Airlines (DAL ) should report boosted earnings as low fuel costs are finally beginning to pay off. DAL is slated to earn $1.72 per share and yields 1.18%.
- Bank of America’s chief rival Wells Fargo (WFC ) will also release earnings today. WFC is expected to make $1.04 per share. The money center bank yields 2.85%.
Thursday continues the trend of more important data and big earnings announcements. To start with, the Bureau of Labor Statistics will report inflation data. Both CPI and Core CPI measures surprised analysts during the last report and showed less-than-expected inflation. This time, analysts are still expecting a slight bump upwards. If they don’t get it, it could be bullish as the Fed won’t raise rates any time soon.
Also being reported on Thursday are unemployment claims. After last week’s bullish numbers, this week could more of the same as analysts have begun to revise their numbers downwards. Finally, two different Federal Reserve banks will release manufacturing data for their respective cities. Both the Philly PMI and Empire State Manufacturing indexes saw sudden contractions last month. Analysts expect more of the same as the economy has shown signs of weakness.
- Private equity and hedge fund manager Blackstone (BX ) is up first on Thursday. BX is set to issue EPS of 73 cents per share. Structured as an MLP, BX yields 8.83%.
- The last of the four major bank stocks, Citigroup (C ) will announce its earnings before the bell. C should make $1.28 per share and yields 0.39%.
- The “Vampire Squid” will also report earnings this Thursday. Investment bank Goldman Sachs (GS ) will make a whopping $3.29 per share. The asset manager currently pays a 1.43% dividend.
- Sin is in at Philip Morris International (PM ). The cigarette and tobacco products manufacturer is set to release earnings of $1.11 per share. PM yields 4.85%.
- As slick as its namesake lubricant spray, WD-40 Co. (WDFC ) should slide right into the middle of Thursday’s big bank earnings releases and report EPS of 81 cents per share. WDFC yields 1.62%.
Ending the week on a bang is the University of Michigan’s Preliminary Consumer Sentiment Report. The prelim number is the most important as it has the biggest impact on the markets. The number has basically trended downwards, even after revisions, since the summer. Analysts expect another dip downwards with October’s prelim report. That could spell a dour shopping season and ultimately a poor fourth quarter for many retailers. On the bright side, the Fed could keep interest rates low and the flow of cheap money going.
Earnings this Friday will be all about industrial might and manufacturing prowess. Again, investors should pay attention to guidance numbers for a gauge on how the economy is doing.
- With General Electric (GE ) selling off its financial assets and getting back to manufacturing things, GE’s earnings can be seen as a bellwether for the sector once again. GE is expected to report EPS of 26 cents per share and yields 3.28%.
- GE rival and industrial giant in its own right, Honeywell International (HON ) will also report earnings on Friday. HON is estimated to earn $1.55 per share. Honeywell pays a 2.05% dividend.
- Investors in Kansas City Southern (KSU ) hope to yell “Choo Choo!” when the firm reports. The railroad is predicted to earn $1.22 per share and yields 1.34%.
The Bottom Line
For investors, the week ahead will bring a torrent of earnings and economic data. The hard part will be to decipher it all. While we move back into an “up is down, black is white, good is bad” sort of state, each piece of data could move the markets in almost random way. Be prepared for some volatility after the holiday on Monday.
Disclosure: Author is Long KMI.