The week ahead for stocks keys on five critical points: the first reporting of second quarter GDP; the Fed's July policy decision and statement; a heavy dose of corporate earnings; the production decision of OPEC/non-OPEC; and the appearance of Trump campaign team members before congressional panels.
The biggest news comes last this week, with the first reporting of second quarter GDP data on Friday morning. The data is absolutely critical to the ongoing direction and velocity of securities markets. Economists are looking for GDP to grow by approximately 2.6%, with the range extending from 2.2% to 2.9%. Anything close to 2.5% should be supportive of stocks; a weaker number is more of a threat to stocks than a larger number is, in my view, because economic strength is more important than Fed monetary policy. Though the Fed may raise its tightening trajectory on a stronger than expected growth figure, it would still reflect well on the health of the economy. Fed rate hikes are a bearable result when deserved.
The Fed should actually be a non-factor this week in terms of providing new news (it's affecting stocks is unavoidable), despite its scheduled FOMC Monetary Policy decision and statement. The Fed typically avoids making waves in non-press conference meetings, though investors will be watching the language of the policy statement for any changes and indication of a future change to the Fed's balance sheet or to interest rates. I'm not expecting to see anything significant, and expect investor anxiety to immediately transition to relief after the data is reported Wednesday afternoon.
Corporate earnings reports will run hot and heavy this week, with two-thirds of the S&P 500 Index reporting results, including many popularly held names. Last week we saw the influence of poor reports by General Electric (NYSE: GE), IBM (NYSE: IBM) and others weigh down the Dow (NYSE: DIA). The same may be true this week, positively or negatively, but for the Nasdaq (Nasdaq: QQQ) this time around. Alphabet (Nasdaq: GOOG) (NASDAQ:GOOGL), Amazon.com (Nasdaq: AMZN) and Facebook (Nasdaq: FB) are reporting results.
Stock market enthusiasm was interrupted last week by more Oval Office drama. The announcement that the Russia election meddling investigation would be broadened to look into the business dealings of Donald Trump and Wilbur Ross, with regard to Russia and Russians, served to smother what I expected would be a breakout for equities. Investors received positive economic data from Housing Starts and Leading Economic Indicators that had stocks breaking records until the D.C. drama smothered the fire. This week, the expected appearances of Donald Trump Jr., Paul Manafort and Jared Kushner before congressional panels should stir up some investor angst and maybe volatility (NYSE: VXX) too.
Finally, OPEC and Russia met Monday morning in Russia to discuss their supply/demand rebalancing efforts. The press conference just concluded as I started writing this paragraph Monday. OPEC's determination was to notify the market that it could extend production cuts past the 9-month plan period if its goals have not been achieved. OPEC says it will keep a tighter watch on compliance as well, after a couple members exceeded production quotas recently. Also, Nigeria could join the program if/when it reaches and sustains 1.8 million barrels a day of production. Noteworthy, as well, was that OPEC sees what I see, and has made an upward adjustment to its demand forecast. As a result, the consortium expects new demand to offset rising production from Libya and Nigeria, and allow the market to rebalance as planned. Oil prices were up approximately 1.1% at 7:00 AM EDT as I concluded.
In conclusion, look for five factors to impact securities markets this week. The first reporting of second quarter GDP is most important, though it comes at the conclusion of the week. The Fed policy decision will likely be a non-factor, but the Fed statement is a must read and will guide the market all week, hopefully into relief on Wednesday afternoon. A slew of corporate earnings reports are due, noteworthy among them some high profile tech stocks. The Oval Office scandal remains in the news, with several appearances of Trump campaign members before congressional panels. OPEC offered mildly supportive, and most importantly, not a damaging determination regarding the oil market Monday. For more of my regular work on markets, readers are welcome to follow the column here at Seeking Alpha.
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