The markets have shown tremendous resilience this year with the S&P 500 hitting all-time highs despite mixed economic data. Many people are expecting a pullback, but each dip this year has only been a buying opportunity. Let's take a look at major events this week and market expectations to determine if the rally will continue.
Monday May 13
Nordic American Tanker (NAT) - The only notable earnings on Monday are from Nordic American Tanker. It is expected they lose $.28/share
Retail Sales - At 8:30 am retail sales will be announced for April. The market expects a decline of .3%
Business Inventories - at 10:00 am business inventories will be announced for March. The market expects an increase of .3%
First and foremost, the market will focus on the WSJ article that claims "The Fed has mapped out a strategy for winding down an unprecedented $85 billion-a-month bond-buying program meant to spur the economy." The market sank quickly last Thursday on rumors of this article before quickly rebounding. Now that the article is official, it will be interesting to see how the market reacts. The economic reports from Monday (especially retail) should help give us a sense for earnings later in the week. Nordic American Tanker will offer insight into the global oil trade. I would strongly urge readers to avoid this name. Even if they do have a decent quarter, the business is dying as North America is on the road to becoming energy independent. If the WSJ article does bring the market down, and if we get a good retail sales number, look to buy some of the retailers mentioned later in this article.
Tuesday May 14
Agilent Technologies (A) - After the bell Agilent will report. It is expected they earn $.67/share
Dick's Sporting Goods (DKS) - It is expected they earn $.48/share
Tuesdays have been excellent days for the market this year, even after we experience declines on Mondays. Look for the market to rebound from any decline, and focus on earnings from Dick's Sporting Goods. Unlike earnings from Nike (NKE) that offer insight into the Chinese consumer, Dicks's is a US play. The health of US consumption is going to be a strong focus this week with many retailers reporting. Remember that Dick's is a play on athletics, and not so much on guns and sporting equipment. To play the surge in gun sales, stick with Cabelas (CAB), as they have a less restrictive policy on firearms. Again, if Dick's claims the US consumer is strong, look to buy retailers reporting later this week on any weakness.
Wednesday May 15
Deere & Company (DE) - Before the bell Deere will report. It is expected they earn $2.72/share
Macy's (M) - Before the bell Macy's will report. It is expected they earn $.53/share
Pinnacle Foods (PF) - It is expected they earn $.29/share
Cisco Systems (CSCO) - After the Bell Cisco will report. It is expected they earn $.49/share
PPI/Core PPI - At 8:30 am PPI/Core PPI will be announced for April. The market expects a decline of .5% and an increase of .1% respectively
Industrial Production - at 9:15 am industrial production will be announced for April. The market expects a decrease of .2%
There will be a lot of data to digest Wednesday. In terms of economic reports, we will get a look at the producer price index, potentially foreshadowing any changes at the consumer level, or CPI. While we get an industrial production number, I believe the earnings and conference call from Deere should also be taken into consideration. Production numbers from a previous month are one thing, but management's outlook on the economy in another. The Deere conference call will be important to dissect, as it may determine the future direction of the cyclicals which have rallied the past few weeks. If we get strong retail numbers this week, look to buy Macy's before they report. Macy's has been eating J.C. Penney's (JCP) lunch, and this trend is likely to continue until Myron Ullman can put into place a new strategy. Pinnacle Foods will report for the very first time, and we can see how this recent IPO is faring. Consumer product and food companies have been underperforming as investors rotate into cyclicals. Look to Pinnacle Foods to see how declining commodity costs affect the bottom line in their respective sector. Cisco's report will be a key indicator of IT spending. With investors rotating into technology, a strong report from Cisco could sustain this trend.
Thursday May 16
Kohl's Corporation (KSS) - Before the bell Kohl's will report. It is expected they earn $.59/share
Wal-Mart Stores (WMT) - Before the bell Wal-Mart will report. It is expected they earn $1.15/share
Nordstrom (JWN) - After the bell Nordstrom will report. It is expected they earn $.76/share
Autodesk (ADSK) - After the bell Autodesk will report. It is expected they earn $.45/share
Initial Claims - At 8:30 am initial claims will be reported for 5/11. The market expects 330k
CPI/Core CPI - At 8:30 am CPI/Core CPI will be reported for April. The market expects a decline of .2% and an increase of .2% respectively
Housing Starts/Building Permits - At 8:30 am housing starts/building permits will be reported for April. The market expects 970k/950k respectively
Philadelphia Fed - At 10:00 am the Philadelphia Fed survey will be reported for May. The market expects 2.5
Likely the most important day in terms of earnings and economic data, Thursday will test consumer strength, IT spending, and the housing recovery. At 8:30 am we will get a deluge of government reports. Initial claims are expected to increase slightly from last week, but this data can be very volatile. It is best to look at a moving average over several weeks to garner better insight of the labor market. CPI will also be announced, and as long as inflation pressures stay low, this will offer the Federal Reserve more flexibility with its monetary policy. Housing starts and Building permits will present more data on the housing recovery. It is widely consented upon that housing is in recovery mode, and we can look to see if this recovery is accelerating or decelerating. Earnings before the bell will come from Kohl's and Wal-Mart. Both of these companies will offer a look at how the lower end consumer is faring. After the bell we will see how the high end "Gatsby-consumer" is faring when Nordstrom reports. We will also hear from Autodesk after the bell. Technology and cyclicals have been widely regarded by many analysts as the two undervalued sectors in the market, and Autodesk can offer a look at the technology sector.
Friday May 17
There are no significant earnings or economic reports Friday. Thursday, however, would have given us plenty of economic data, earnings, and conference calls to dissect. Calls from Wal-Mart and Nordstrom, in particular, will allow us to compare the dichotomy between the high end and low end consumer. Strong numbers from Autodesk could also hint at a recovering economy. Autodesk's programs are used in large manufacturing, building, and infrastructure products, so this could be a good indicator of future industrial activity.
This week largely focuses on the consumer. A number of important retailers report, and we also get the retail sales numbers for April. A strong consumer may indicate that the "wealth effect" is alive and well despite poor unemployment data. Even with all the earnings and economic data this week, the focus remains on the Federal Reserve and their aggressive monetary policy. Any signs of tapering will continue to be watched closely.