10 Market Shifting Events This Week

by: Spencer Knight

Each week investors and traders look for new reasons to buy and sell. Most of the time the reasons are given to them (i.e. earnings reports) because market shifting events are scheduled and expected. Therefore, the share prices and indexes do not move based upon the "news." On the other hand, when these same events produce surprises, traders and investors set off fireworks. There are 10 events this week that will invoke these fireworks and possibly drive the broader U.S. indexes higher or lower.

1) November 2011 Treasury Budget

The Treasury Budget is important because it can set the interest rates for securities and companies alike. This happens because the larger the deficit, the more bonds and notes the Treasury must sell in order to pay for their operations. Therefore, if demand does not increase the Treasury will be forced to lower the price and raise the yield in order to spur buyers. Unfortunately, as we have seen with Spain, if buyers do not come forward the interest rate must continue to be raised which ultimately can lead to higher inflation and higher interest on stocks, which are both bearish signs.

Nevertheless, at 2pm EST on December 12th the Treasury will announce the November budget. Consensus is expecting a loss of $139.5 billion while Briefing is expecting a loss of $139 billion.

2) Best Buy's (NYSE:BBY) Earnings

Beat Buy is scheduled to report the company's third quarter earnings before the market open on Tuesday, December 13. This will be an important earnings release for two reasons. The first reason is Best Buy needs a strong quarter to impress shareholders because the share price has not been able to stabilize for nearly two years. A big reason for this is because Best Buy has not delivered quarter over quarter or month over month same store sales growth in at least 6 quarters. The second reason is Best Buy is a major retail player, which means the company's language towards consumer spending can send ripples through the stock market.

The good news for Best Buy is the month of November was very strong, which means the company will point out this strength during the conference call. Nevertheless, analysts are expecting Best Buy to report revenue at $12.14 billion and EPS at $0.51. This would be an insignificant increase in revenue, but for Best Buy any increase is fantastic news. More importantly, investors will be looking for same store sales as well as a positive guidance. Currently, analysts are expecting fourth quarter guidance to be in the ballpark of $17.28 billion in revenue and $2.17 per share.

3) November 2011 Retail Sales

The retail sales report is one of the most anticipated reports of the month because the report indicates consumer spending, and it is perceived that the more consumers are spending the stronger the economy. Therefore, this report can set the tone for the entire trading session. It is imperative this report is strong because with the turmoil in Europe swirling, investors are looking for any sign of weakness at home to sell off and go short on stocks. It is important to note one of the drawbacks is the fact that higher fuel prices and food prices may cause overall sales to appear weak when in reality it is simply because $1 buys less gas or food.

Consensus estimates are mixed. Briefing is expecting retail sales to come in at 0.8% while the market expects 0.6%. Both of which are an increase from October retail sales which were 0.5%.

4) Joy Global (NYSE:JOY) Earnings

Joy Global is scheduled to release the company's third quarter earnings on Wednesday, December 14. Joy Global's earnings are important because it will indicate construction and machinery spending. Joy Global is a smaller competitor to Caterpillar (NYSE:CAT) and Deere (NYSE:DE). But with a market cap greater than $9 billion the company is no slouch in the Industrial Goods sector. More importantly, Joy Global focuses on machinery for mining purposes; therefore the company's earnings will allow commodity investors to get a deeper look into commodities such as coal, copper, iron, and oil sands. This is important because if mining companies are purchasing new materials then it can be properly assumed commodity companies are prospering. However, if Joy Global reports a gloomy mining sector the bears will surface.

Analysts are expecting Joy Global to report revenue at $1.35 billion and earnings at $1.86 per share. If Joy Global is able to hit these fourth quarters earnings right on that will set the company's full year 2011 earnings at $4.4 billion which is a $900 million increase from 2010. Unfortunately, the company forecasted FY2012 revenue to be in the vicinity of $4.3-$4.5 billion. This indicates Joy Global is expecting a worldwide slowdown that does not allow the company to grow revenue next year. If this same revenue forecast is given on Wednesday, we may see the stock as well as the broader market fall on fear that the worldwide economy is slowing on all fronts.

5) FedEx (NYSE:FDX) Earnings

FedEx is scheduled to report the company's fourth quarter earnings before the market opens on Thursday, December 15. FedEx is an economic indicator because the company profits from packages being sent. Therefore, the greater number of packages, the more consumers are spending. Likewise, the greater number of packages business are receiving and sending implies business spending is growing which is a bullish sign for the economy.

FedEx has been forecasting record deliveries during the holiday season for a couple months now and this has kept the share price relatively stable throughout the drama unfolding in Europe. Nevertheless, analysts are expecting FedEx to report revenue at $10.58 billion and earnings of $1.52 per share. If FedEx is able to surpass this estimate this would be a quarter over quarter increase.

One of the biggest reasons for FedEx's year over year revenue increase is because FedEx has raised the price of shipping costs this year and the company announced they will continue to increase shipping costs 4.9% in 2012. This should keep revenue moving forward, but investors need to keep this in mind and not be swooned by an increased forecast.

6) November Industrial Production

The Industrial Production report is due Thursday before the market opens, and it is important for several reasons. The first reason is because this report gives a reading on the country's production. For instance the greater the manufacturing production, the stronger the overall economy. Of course, this can also be a sign of a slowing economy if the report shows a slowdown in manufacturing production because this indicates demand for products is low or there is a backlog in inventory. Whichever is the case, it can be assumed consumers are not spending at levels necessary for a full economic recovery if the production report is low. This report has the potential to shift the broader market because any extraordinary drop or surge in production will give bulls and bears and easy trade.

7) Research in Motion's (RIMM) Earnings

RIM is scheduled to report the company's third quarter earnings after the market closes on Thursday. There are two ways to sum up the year for RIM: 1) the share price currently sits 76% below the 2011 high, and 2) the company has reported a sequential decrease across the financial sheet for three quarters. Will this continue this quarter? No, it will not, but only because the company's fiscal third quarter ended November 26th. This means the company may have made some strong sales during the post Thanksgiving hullabaloo. Nevertheless, the company is a long ways from where it was years ago.

Analysts are expecting RIM to report revenue around $5.26 billion with an EPS of $1.19. This will break the streak of consecutive quarters of decreased revenue and EPS, but it will be a year over year decrease. This adds another dimension to RIM's earnings report. Not only are traders looking for a reason to push the beaten down stock higher, but if the company reports another miss on the revenue side, we will see another sell off. It should not be surprising to see RIM's stock outperform the market leading up to the earnings report because many investors feel the company is too strong to miss again. Expect a roller coaster ride from RIM's share price.

8) Adobe's (NASDAQ:ADBE) Earnings

Adobe is slated to report the company's fourth quarter earnings on Thursday after the market closes as well. This sets up the technology sector for a strong move on Friday. With RIM and Adobe reporting at the same time, technology traders will have their hands full. Nevertheless, Adobe's share price has performed relatively will this year; which follows the company's steady earnings over the past five quarters.

Analysts are expecting Adobe to report revenue around $1.09 billion with earnings of $0.60 per share. If Adobe reports in line with consensus we will see another steady improvement from the company in terms of revenue. The important question is if Adobe will surpass their own expectations (.pdf) of $1.075-$1.125 billion. Because Adobe announced relatively early they will reach this goal, it is possible the company reports on the upper limit; which will be a successful earnings beat. If Adobe and RIM are able to report strong earnings beats we will see a technology rally on Friday. Unfortunately, this may not happen, but the application software industry may get a boost from Adobe's report.

9) Darden Restaurants (NYSE:DRI) Earnings

Darden is scheduled to report the company's second quarter earnings report on Friday, December 16 before the market opens. Up until December 6 Darden's share price was performing very well. However, after the company negatively revised EPS for the second quarter, the share price plunged. To sum up the changes, Darden stated the company is expecting EPS to be at $0.41 for the second quarter and FY2012 revenue to be around $7.95-$8.025 billion; which accounts for 6%-7% year over year growth.

Unfortunately for shareholders, analysts were expecting Darden to report EPS at $0.54 for the second quarter. This has since been revised to $0.43. This indicates long term shareholders may still feel some pain because Darden's revised estimate is still below analysts expectations which opens up Darden as an excellent value play if the stock slips below 40. Analysts are also expecting revenue to be at $1.83 billion. Darden's earnings report is important for the broader market because it will give economists and investors a look at the Services sector and consumer spending. If consumers are not spending at Darden's restaurants it will give bears a reason to push the broader market lower.

10) November's Consumer Price Index (NYSEARCA:CPI)

November's CPI report is due to be released before the market opens on Friday as well. The CPI report is important because it gives us a look at the month to month cost of living. This may not be inflation per se, but it does give economists and investors a look at the increase in cost of living; which is essentially inflation. While we would all love to see a lower CPI, this will not happen.

One of the more important parts of the report to look at is the core CPI section. The core CPI value is simply the cost of living excluding food and energy. It is important to exclude these two because these are the two most volatile living expenses; particularly energy. With that said, it is often times important to include these two values when reading the CPI report because the truth is food and energy are the majority of our daily expenses. Therefore, even though these are highly volatile, these should not be overlooked by any stretch of the imagination. Briefing and the market are expecting core CPI and CPI to come in at 0.1%.

This week will be a busy week for investors, traders, and economists. The equities market has a good chance of bouncing up and down based upon the economic reports and earnings from six large cap companies. One final event that will shift the market the most is Europe. It is inevitable there will be rumors throughout the week that will cause dramatic price shifts. However, it is best for long term investors to avoid buying and selling on these rumors because all they do is cause the market to move right in the long run.

Disclosure: I am long CAT.