The recipe for this coming week? A stew of earnings, peppered with data and a Fed meeting. Also ahead: A first look at estimated Q2 gross domestic product (GDP).
There's a truckload of earnings on the way, with key companies reporting early in the week including Caterpillar (NYSE:CAT), Eli Lilly (NYSE:LLY), McDonald's (NYSE:MCD), and Under Armour (NYSE:UA) on Tuesday and Boeing (NYSE:BA), Coca Cola (NYSE:KO) and Facebook (NASDAQ:FB) on Wednesday. By the middle of the week, investors should have a much better idea of how the industrial, retail, and technology sectors are doing.
But by mid-week, the focus is likely to be squarely on the Fed, which meets Tuesday and Wednesday. The futures market shows virtually no chance of a Fed rate hike, so there may be less drama surrounding this meeting than for some past ones. Odds of a hike go up somewhat for the Fed's September meeting, but still not to the levels forecast a few months ago. In fact, the futures market doesn't forecast a 50% or better chance for a Fed hike until early 2017. Fed officials, speaking prior to the silent period ahead of next week's meeting, continued to sound a cautious tone, particularly with the long-term impact of Brexit still unclear.
With odds of rising rates relatively far off, 10-year Treasury bond yields remained below 1.6% as of midday Friday. Investors continue to look for safety, and seem to be comfortable with low yields in exchange for a less risky place to put their money.
After the Fed meeting, investors get a look next Friday at the government's first estimate for Q2 GDP, after anemic 1.1% GDP growth in Q1. The latest Q2 GDP growth forecast from the Atlanta Fed is at 2.4%, up a bit from its previous estimate of 2.3%, with robust residential construction contributing to the uptick, the Atlanta Fed said. Keep in mind, however, that world growth estimates were recently cut back by the International Monetary Fund (NYSE:IMF), which now predicts global growth of 3.1% this year, down from the previous estimate of 3.2%. This, the agency said, is due to uncertainties around Brexit, and the IMF cut estimated United Kingdom growth to 1.7% for the year.
One potential headwind for U.S. stocks is the oil market, which remained under pressure late last week as heavy supplies and a stronger U.S. dollar continued to weigh on prices. By midday Friday, front-month U.S. oil futures had fallen below $44 and were trading near two-month lows and below levels where some analysts had seen technical support.
The Fed meeting, GDP, and earnings aren't the only things to watch for in the days ahead. New home sales and consumer confidence come Tuesday, followed by Chicago PMI on Friday. All in all, a very busy week that could keep investors on their toes.
With U.S. stocks at record highs, it gets a bit more difficult to track resistance above the market. Toward the end of last week, the S&P 500 Index (SPX) pivoted around a key support area at 2166. A solid move above that level might be viewed as bullish by those who watch the technical picture.
Figure 1: Grinding Higher: The S&P 500 (SPX), plotted here through midday Friday on the TD Ameritrade thinkorswim® platform, pushed through a key technical level at 2166 by midday Friday. With markets at record highs, it gets a bit more challenging to determine the next resistance level. Source: Standard & Poor's. For illustrative purposes only. Past performance does not guarantee future results.
Crude May Weigh on Stocks, But Drivers Rewarded: Weakness in crude oil may pose a slight headwind for stocks, but it's looking like a boost for U.S. drivers, who are enjoying the lowest summer gas prices in 12 years, not adjusted for inflation. Are drivers taking advantage? That's questionable, as gasoline supplies grew the last two weeks, according to the U.S. Energy Information Administration (NYSEMKT:EIA), and are at their highest levels for this time of year in the 26 years tracked by EIA. If product demand is weak, it's probably not an issue of prices. The average price of gasoline around the U.S. stood at just under $2.18 on Friday, according to AAA, down from around $2.75 a year ago. Cheapest prices are in Texas and Oklahoma, where gas can be found at some stations for less than $1.60 a gallon. "Gas prices likely will remain relatively low compared to recent years for the remainder of the summer," AAA said in a press release last week.
General Electric Stays Optimistic On Call: General Electric (NYSE:GE) reported quarterly profit and revenue above consensus expectations, but the stock came under some pressure Friday as investors focused on the company's falling Q2 industrial orders. On the company's conference call later Friday, CEO Jeff Immelt stayed positive, according to media reports, noting that although GE's oil, gas, and transportation businesses are going through some tough times, "85%" of the company is in "great shape." He also forecast acceleration in second half organic growth, helped in part by strong demand for power turbines.
Are Americans Getting Less Caffeinated? Those lines at Starbucks (NASDAQ:SBUX) still seem pretty long, but the company reported disappointing same-store sales growth in Q2. That didn't appear to affect shares of Starbucks, which were up slightly as of midday Friday. While one quarter isn't a trend, the early thinking here is that perhaps SBUX saw stronger sales growth earlier in the year when the economy was struggling because during hard times, people may not have been able to afford a vacation so they treated themselves to something little, like a latte. Now that the economy appears to be doing better, perhaps people are focused on bigger ticket items and are saving for those vacations or new cars, meaning they might cut back on smaller purchases.
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