- Stocks, oil tick lower to begin week. The S&P 500 and Dow are slightly lower in early trading along with WTI crude oil ($52.59/barrel), which is down more than 2.5% on concerns about increasing U.S. production. Stocks closed higher on Friday, led upward by the technology sector (+1.0%), while telecom (-2.7%) dropped sharply as Treasury yields rose. The session capped off a 1.7% gain for the S&P 500 in the first week of the new year; the Dow (+1.0% for the week) came within one point of the much-watched 20,000 mark. Overnight, Asian markets were little changed; Japan’s Nikkei was closed for a holiday while the Shanghai Composite moved up 0.5%. European indexes are mostly lower in the afternoon session; the STOXX Europe 600 is down 0.5%, though the U.K.’s FTSE 100 is up 0.2% as the pound hits a 10-week low against the dollar. Finally, recent buying interest in Treasuries continues to push the yield on the 10-year note down, currently trading at 2.37%, and COMEX gold ($1178/oz.) is climbing 0.4% despite a modestly stronger dollar.
- Week ahead. The consumer is in focus this week, with reports on December retail sales and consumer confidence as well as November consumer credit highlighting an otherwise quiet week for data, as is typical for the week after the monthly jobs report. A handful of Federal Reserve Bank (Fed) speakers are on tap this week after a year-end and early-year lull, including an appearance by Fed Chair Janet Yellen on Thursday at a town hall event in Washington, D.C. Overseas, China will release its December economic data this week, and central bank meetings in Brazil, South Korea, and Poland are on tap, with Brazil expected to cut rates. In addition, the Q4 2016 earnings reporting season unofficially begin, as firms begin to report sales and earnings for Q4 2016 and guidance on 2017.
- Earnings season gets underway this week, and it looks like it will be another good one. This week, we preview fourth quarter earnings season, which may mark the return of earnings growth to the energy sector. Thomson-tracked consensus estimates for the quarter are calling for a 6.1% year-over-year increase in S&P 500 earnings. Based on typical upside, double-digit earnings growth may be within the realm of possibility. We have several reasons to be optimistic including resilient estimates, an improved pre-announcement ratio, good manufacturing data, and the energy rebound.
- The biggest story of earnings season besides energy’s turnaround will likely be financials. The sector’s outlook and estimates have both improved in recent months as rising interest rates, stock market gains, higher oil prices, and narrowing credit spreads all help buoy the sector’s profit picture. Consensus estimates are calling for a market-leading 15.7% year-over-year increase, while more help could be on the way later this year in the form of deregulation.
- A closer look at January. This week, we take a look at the many significant events that are set to take place during the first month of the year. The jobs report last Friday was initially viewed negatively, but after some time to think about it, the market decided the miss wasn’t so bad. Other big events this month include first quarter earnings, Chinese New Year, and the Federal Reserve meeting at the end of the month to decide interest rate policy.
- The most bullish technical formation since 1982? The S&P 500 completed a very rare technical pattern last year for only the third time in history–a bullish outside year. This technical formation happens when the high of a year is greater than the high from the previous year and the low from the year is lower than the low from the previous year. Going back to 1928¹, this has only happened in 1935, 1982, and 2016. What does it mean? Well, in 1936 the S&P 500 was up 27.9%, and in 1983 the S&P 500 gained 17.3%–not to mention that a huge 18-year bull market kicked off.
- Dow so close, yet so far. The Dow traded as high as 19,999.63 on Friday in its quest to finally hit the 20,000 mark. Eventually it sold off slightly and closed 0.2% away from this round number. Our stance remains the same; big round numbers don’t mean much to investors over the long run. If anything, now is a chance to take a step back, re-evaluate, and remember how far we’ve come during this bull market. But 20,000 by itself simply doesn’t mean anything to long-term investors.
- New highs, but trouble brewing? The S&P 500 closed at a fresh all-time high on Friday for the first time since December 13. Also, the S&P 500 has now gone 60 consecutive days without a 1% drop, the longest such streak since 66 days in a row in the summer of 2014. Looking under the surface though, breadth was very weak as small and mid caps lagged. In fact, there were more NYSE decliners than advancers on Friday–even though the S&P 500 made a new high. Should this trend continue it could be a major worry, and it is something we will watch very closely.
- Chinese reserves fall. As expected, official Chinese currency reserves declined to just over $3 trillion, down from $4 trillion at the high in the middle of 2014. China has been reducing its reserves, by selling U.S. treasury bonds and other securities to support its economy, and most importantly the yuan, against further depreciation. The yuan rallied at the end of last week, but resumed its decline as the markets opened Monday morning.
- Eurozone: Unemployment Rate
- German Chancellor Merkel Speech on Future of Europe
- China: CPI (Dec)
- China: Money Supply and New Loan Growth
- NFIB Small Business Optimism Index
- Trump News Conference
- Brazil: Central Bank Meeting (Rate Cut Expected)
- Initial Claims (1/7)
- Yellen (Dove)
- Harker (Hawk)
- China: Imports and Exports (Dec)
- Japan: Economy Watchers Survey (Dec)
- Retail Sales (Dec)
- Consumer Sentiment and Inflation Expectations (Jan)
- Harker (Hawk)
- Japan: Machine Orders (Nov)
- Japan: PPI (Dec)
¹ Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1928 incorporates the performance of predecessor index, the S&P 90.
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