Good news is good news again, in that since Janet Yellen has taken the possibility of faster Fed rate action of the table, good economic data flow should support stocks.
Still, every good story has its villain, and this week's is Vladimir Putin and the risk of Russian intervention in Eastern Ukraine. There's also that pesky Core PCE Price Index.
I see stocks and the SPY ETF ending the week in the green, unless the Reds (Russians) intervene.
Thanks to Janet Yellen's Jackson Hole dovishness, what's good is good again. However, because of Vladimir Putin's latest aggression, what's bad is also bad. Let's focus on the positive shall we? The week ahead leads into the Labor Day holiday, and so, is supposed to be a light trading period. However, given the very special dynamics of today's world, you never know. Still, Janet Yellen has given us a favorable base to start from this week, and that is coming off of last week's strong market performance.
SPDR S&P 500 (NYSE: SPY)
SPDR Dow Jones (NYSE: DIA)
PowerShares QQQ (NASDAQ: QQQ)
SPDR Gold Shares (NYSE: GLD)
iPath S&P Crude Oil (NYSE: OIL)
PIMCO Total Return (NASDAQ: BOND)
PowerShares US $ Bull (NYSE: UUP)
The SPDR S&P 500 ETF finished last week up 1.8%, extending its year-to-date respectable gain of 7.9% at a time when much was in doubt. The SPY is still holding up a 19.5% trailing twelve month gain, and the week ahead seems to offer opportunity for more, barring any disturbance from Russia or a key inflation measure at the close of the week.
Yellen has really set the stage for unencumbered celebration. No longer must we weigh fear of Fed action on interest rates when strong economic data pour in. Last week, Yellen focused very attentive market attention on a vague and useful unresolved issue in the economic recovery. Labor slack, she said, was a problem plaguing the post crisis economy, and while it exists, we may not see it reflected in labor market and economic measures. This seemed to say, no matter how well the economy does between now and next year, we (the Fed) will not raise interest rates faster than expected. In other words, buy stocks without concern.
This week's slate of economic figures offers some high flyers, with durable goods orders expected to increase more than 5% on the top line. Though, you will want to pay closer attention to the ex-transportation measure, as it excludes the hefty ticket goods that can skew the top line figure month-to-month. It'll show a modest rate of growth, according to economists. GDP also gets another look this week, but economists expect the 4.0% performance reported initially to hold in this second look. Normally, these kinds of results would stoke concern for inflation, but good news is good news again this week thanks to Janet.
The consumer gets an important inspection in the period, with two key consumer sentiment measures due. The Conference Board takes a look on Tuesday and Reuters/ University of Michigan on Friday. However, look for the more tangible evidence of consumer spending on Friday, when Personal Income & Outlays are reported. We're looking at the pre-back-to-school period here, so it's not that significant a data point; the upcoming chain store sales figures will offer a more important perspective.
This week's consumer spending data brings with it probably the biggest pitfall potential of the week, from an economic perspective. The Core PCE Price Index is the Federal Reserve's favored inflation gauge, so no matter what Yellen said last week, if this data posts hot, we're back in the pot. Good news, though, dear unshaven and unseemly Wall Street brethren, who think it's okay to let down your guard because of the season (I'm included), economists do not expect even an inkling of inflation to show up on Friday. The consensus estimate is for a 0.1% month-to-month rise in the Core PCE Price Index, so you can get the car ready for the beach… hopefully.
There's always a villain in ever good story. This week's antagonist is the same since late February. Vladimir Putin is only going to become more scary as Ukraine closes in on Russian separatists, now better armed though. If victory seems imminent, I think you can expect Russian tanks to roll into Eastern Ukraine, probably all the way to the Dnipro River and the Psel. That's bad news for stocks in bad news for the world. Still, all signs are that the refreshed separatists might hold out a while longer, so pour me a margarita and let's get this Labor Day BBQ fire going.
The earnings front is light, with Best Buy (NYSE: BBY), The Gap (NYSE: GPS) and Renren (NASDAQ: RENN), perhaps most notable. None of these issues should move the market or affect the SPY, which I see closing in the green this week, barring any movement by the Reds over there by the Dnipro.
Real estate enthusiasts will have plenty to chew on this week, after last week's tasty meal that sent housing stocks higher. New home sales, house price data and pending home sales will prove potent for the group, so stay attuned. I'll have a special weekly report on housing out shortly, so readers may want to follow my column for notification of that or for my daily markets coverage.