The Week Ahead: Congress Debates Stimulus

Speculation about the likelihood and degree of fiscal stimulus will be front and center again this week, as Congressional committees in both branches of Capitol Hill meet to discuss just that. We here believe the President’s idea to impact GDP by 1% or so with stimulus would be effective, and we also approve of the rumored $800 tax rebate check. That would prove meaningful to a heck of a lot of folks, and for those who might consider it just a pittance, it offers incentive to go buy something they’ve been coveting for awhile. Retailer shares reacted positively to the news. Also, the theoretical $1,600 bonus for married couples is precisely the shot in the arm the American household needs right now.

Apparently Democrats are more concerned about how we are going to pay for these desperately needed offerings, and John McCain on the Republican side also harped on the subject. I heard NY Democratic Senator Charles Schumer mouthing off about how much better increased government spending would be, over the proposed direct payout. How do you feel about that America? Would you rather the government decide where to spend this cash infusion, or do you think you might do better with that decision yourself?

Market-Moving Event Schedule:

Monday

U.S. markets are closed to honor the memory of Dr. Martin Luther King Jr. A handful of companies were still scheduled to report earnings on Monday though, including DST Systems (NYSE: DST), Equity Lifestyle Properties (NYSE: ELS), First Defiance Financial (Nasdaq: FDEF), HDFC Bank (NYSE: HDB), Innovex (Nasdaq: INVX), Royal Phillips Electronics (NYSE: PHG), S&T Bancorp (Nasdaq: STBA) and Satyam Computer Services (NYSE: SAY).

Tuesday

The Senate Finance Committee begins important discussion of fiscal stimulus. We hope the Committee gets things off on the right foot, and does not send a message to the market of a bogged down debate that could lead to a late impacting, future government aid package. Americans need that money now! We’ll get an indication of just how badly so, with the 10:00 a.m. release of State Street’s Investor Confidence Index.

Two important foreign central banks are scheduled to make announcements on Tuesday. The Bank of Canada is expected to cut its target rate by a quarter point as it weighs the near-term impact of a slowing American economy on its Republic. The Bank of Japan will end its two-day meeting on Tuesday, and is expected to announce that it will hold rates steady at 0.5%. It’s hard to envision any central bank raising rates now, outside of China where growth continues, but the ECB continues to raise the specter of inflation in its public discussions.

Barron’s reports that at some point this week China will announce its economic growth figures for the fourth quarter and the full year of 2007. This report, if it shows impact from U.S. softening, could set off the fire alarm in the world’s emerging markets. Up to this point, still high-flying Asian investors (relatively speaking) have only smelled what they think is smoke. With the U.S. flailing, pension fund flows have likely been increasing into emerging markets, helping to offset profit-taking impact and the global growth slowdown scare.

OPEC is scheduled to issue its monthly oil market report, where it should be all like, “I told you so.” OPEC will likely point toward American economic weakness as good reason to keep production steady, or dare I say, even warn of potential production cuts. Hopefully, George Junior got a few good words in for us on his Mid-East trip last week.

Tuesday’s earnings schedule will be headlined by Apple (Nasdaq: AAPL), Bank of America (NYSE: BAC) and Wachovia (NYSE: WB). Even the mighty have fallen, with Apple joining Monsanto (NYSE: MON), Research in Motion (Nasdaq: RIMM) and other recently strong shares in retracing ground recently. Apple seems set to report strongly, however, and the consensus of analysts expects EPS growth of 41%, to $1.62 from the company’s fiscal first quarter report.

Other notables on the schedule include Cree Inc. (Nasdaq: CREE), CSX Corp. (NYSE: CSX), DuPont (NYSE: DD), Eaton (NYSE: ETN), Fair Isaac (NYSE: FIC), Fastenal (Nasdaq: FAST), Fifth Third Bancorp. (Nasdaq: FITB), Jacobs Engineering (NYSE: JEC), Johnson & Johnson (NYSE: JNJ), National City (NYSE: NCC), PetMed Express (Nasdaq: PETS), Plantronics (NYSE: PLT), Precision Castparts (NYSE: PCP), Regis Corp. (NYSE: RGS), STMicroelectronics (NYSE: STM), Suncor Energy (NYSE: SU), Susquehanna Bancshares (Nasdaq: SUSQ), Tellabs (Nasdaq: TLAB), Texas Instruments (NYSE: TXN), UAL Corp. (Nasdaq: UAUA), UnitedHealth (NYSE: UNH), Waters Corp. (NYSE: WAT) and a bunch more.

Wednesday

The House Budget Committee picks up the baton from the Senate, when it commences its own debate regarding fiscal stimulus on Wednesday. The weekly Same-Store Sales Report from the ICSC-UBS is pushed back day for the holiday-shortened week. Recall, last week’s data showed a sharp drop in growth rate to 1.1%. With all indications that the consumer is softening, and is also now well aware of his own situation, you can expect further weakness in this figure.

The Mortgage Bankers Association’s Mortgage Applications Index should continue to show benefit from sharply lower interest rates. Yields have dropped precipitously on the flight to safety and expectations for a Fed rate action. The treasury market forecasts a 50 point cut at least, and is actually looking toward 75 points. Now that the Fed’s “transparency” has raised expectations, they can let us all down with action that is more likely to mirror their conservatism. If we don’t get 75 points in aggregate by the end of the month, I see my hope for near-term rally sharply damaged. We continue to expect the Fed to follow up the President’s State of the Union introduced stimulus plan with a sharp cut at the regular January meeting. Sharp better mean 75 to 100 basis points though, and 50 to 75 seems more likely from this group...

It’s Davos time! Yes, it’s already that time of year when Maria Bartiromo gets to don her snow bunny outfit and board a plain to Switzerland to the World Economic Forum. While there, she will utter her favorite word (now ours as well), “Davos,” again and again. Hopefully Switzerland will also be a turn on for the Greek national soccer club in June when it defends its European championship.

The EIA will report on Petroleum Status at its regular time, 10:30, but the market remains focused on the economic outlook and this week, on OPEC’s announcement. We continue to see oil prices declining this year until Iran, so we would underweight energy. We outlined this view in our article, Profit Taking Could Dim Solar Plays, in case you missed it.

Wednesday’s earnings schedule includes some of the market’s heavy hitters including Brinker International (NYSE: EAT), Capital One Financial (NYSE: COF), Coach (NYSE: COH), ConocoPhillips (NYSE: COP), Delta Airlines (NYSE: DAL), eBay (Nasdaq: EBAY), General Dynamics (NYSE: GD), Kennametal (NYSE: KMT), Motorola (NYSE: MOT), Netflix (Nasdaq: NFLX), Noble Corp. (NYSE: NE), Piper Jaffray (NYSE: PJC), Praxair (NYSE: PX), QLogic (Nasdaq: QLGC), Qualcomm (Nasdaq: QCOM), Reinsurance Group of America (NYSE: RGA), Rockwell Automation (NYSE: ROK), Ryland Group (NYSE: RYL), SLM Corp. (NYSE: SLM), Southwest Airlines (NYSE: LUV), Sovereign Bancorp (NYSE: SOV), St. Jude Medical (NYSE: STJ), Stryker (NYSE: SYK), SunTrust (NYSE: STI), Symantec (Nasdaq: SYMC), Teradyne (NYSE: TER), United Technologies (NYSE: UTX), WellPoint (NYSE: WLP) and many more.

Thursday

At 8:30, the market will be closely attuned to the Weekly Initial Jobless Claims Report from the Labor Department. The last few weeks have drifted well off the peaks of late December. Bloomberg’s consensus of economists is looking for new claims amounting to 321K for the week ended January 19. Last week’s reading measured 301K, but offered no relief to the market. We continue to expect widening financial sector and retail/restaurant space layoffs to mount this year, driving unemployment well above the current 5.0%.

At 10:00 a.m., Existing Home Sales for December are seen at an annual run rate of 4.95 million. Last week’s Housing Starts Report showed they sank to lows not seen since 1991. We wouldn’t expect any positive surprise here either. What should start housing stocks higher is a 100 point move by the Fed... Otherwise, the gradual thinning of home inventory should do it by mid-year, despite rising foreclosure channel flow. The stocks will lead their market’s recovery, not visa versa.

The EIA’s Natural Gas Report is due at 10:30. The EIA’s own website indicates this report will be on Thursday, but in the past, long holiday weekends have led the group to push back reports a day. If that’s the case here, look for Petroleum Status Thursday and Natural Gas on Friday.

Get ready for a meaty earnings schedule on Thursday, including 1-800-FLOWERS.COM (Nasdaq: FLWS), Ameriprise Financial (NYSE: AMP), Amgen (Nasdaq: AMGN), AT&T (NYSE: T), Avnet (NYSE: AVT), Ball Corp. (NYSE: BLL), Baxter Int’l (NYSE: BAX), Becton, Dickinson & Co. (NYSE: BDX), Broadcom (Nasdaq: BRCM), Cadence Financial (Nasdaq: CADE), Cash America (NYSE: CSH), Consolidated Edison (NYSE: ED), Cooper Industries (NYSE: CBE), Cypress Semiconductor (NYSE: CY), Danaher (NYSE: DHR), DeVry (NYSE: DV), Dover Downs (NYSE: DDE), E*Trade (Nasdaq: ETFC), Fairchild Semi (NYSE: FCS), Hartford Financial (NYSE: HIG), Int’l Speedway (Nasdaq: ISCA), Janus Capital (NYSE: JNS), Kelly Services (Nasdaq: KELYA), Kimberly Clark (NYSE: KMB), KLA-Tencor (Nasdaq: KLAC), Kulicke & Soffa (Nasdaq: KLIC), Lam Research (Nasdaq: LRCX), Leggett & Platt (NYSE: LEG), Lennar Corp. (NYSE: LEN), Lockheed Martin (NYSE: LMT), Martek Biosciences (Nasdaq: MATK), Mathews International (Nasdaq: MATW), MEMC Electronics (NYSE: WFR), Microsoft (Nasdaq: MSFT), Nokia (NYSE: NOK), PMC-Sierra (Nasdaq: PMCS), Potash (NYSE: POT), Rockwell Collins (NYSE: COL), Steak ‘n Shake (NYSE: SNS), Sun Microsystems (Nasdaq: JAVA), SunPower (Nasdaq: SPWR), Technitrol (NYSE: TNL), Teledyne Tech (NYSE: TDY), Textron (NYSE: TXT), Hershey (NYSE: HSY), McGraw Hill (NYSE: MHP), US Airways (NYSE: LCC), Xerox (NYSE: XRX) and more.

Friday

There’s nothing on the slate outside of earnings news on Friday. Those reports include Caterpillar (NYSE: CAT), Harley-Davidson (NYSE: HOG), Idexx Laboratories (Nasdaq: IDXX), Arkansas Best (Nasdaq: ABFS), Concurrent Computer (Nasdaq: CCUR), Delta Apparel (NYSE: DLA), Dime Community Bancshares (Nasdaq: DCOM), Dr. Reddy’s (NYSE: RDY), FirstFed Financial (NYSE: FED), Johnson Outdoors (Nasdaq: JOUT), Kensey Nash (Nasdaq: KNSY), KT Corp. (NYSE: KTC), Lakeland Financial (Nasdaq: LKFN), MB Financial (Nasdaq: MBFI), MDU Resources (NYSE: MDU), Midsouth Bancorp (NYSE: MSL), Multi-Color Corp. (Nasdaq: LABL), NuStar GP Holdings (NYSE: NSH), Prosperity Bancshares (Nasdaq: PRSP), Provident Bancorp (Nasdaq: PBNY), W.W. Grainger (NYSE: GWW) and Weatherford Int’l (NYSE: WFT).