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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.
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.
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.
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.
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.
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.