This promises to be an exciting week as taxpayers rush to file before the deadline and investors are inundated with data from earnings. We start every week watching for ideas that could provide opportunities to develop trades, long or short. This week we are looking at the rotation of leadership, the price of oil and the dollar, the height of the earnings parade, taxes, and economic outlook through the eyes of the banks. It promises to be a fun filled week of trading and opportunities.
Leadership – Last week we discussed the defensive sectors consumer staples and healthcare have taken the leadership role for the broad markets. Money is rotating towards the sectors where risk is perceived to be lower looking forward. One primary concern for consumer staples is the higher price of commodities. Can the price increases be passed on effectively to the consumer? We have see announcement from Nestle and Kellogg’s relative to increases, but it is too early to tell the impact. Healthcare faces an uphill battle as well withbudget cuts at both the federal and state levels. Money is rotating that direction as reflected on the charts of Coke (NYSE:KO), Kellogg (NYSE:K) and Kroger (NYSE:KR). Watch this week to see if any growth sectors join the upside or more money flows to the defensive sectors.
Oil vs Dollar – The price of crude oil pulled back towards the $106 level last week only to close above $109. The Middle East and Northern Africa geopolitical issues are putting speculation into the pricing of oil, but the US dollar isn’t helping. The dollar index continues to fall putting pressure on the cost of imports. Thus, the US continues to ignore the dollar in belief we can export more goods around the world and help the economy. This has never worked in history, but the current administration believes it can be the Cinderella story. We are importing inflation as the price of crude has jumped from $85 to $109 since February 16th, or more than 28%. Watch 74.24 as support on the dollar index. A break below this level will set a new low for the dollar. The relationship between oil and the dollar will only exacerbate the situation along with the geopolitical issues globally. Over the weekend the Saudi Oil Minister stated they would cut production as the market is oversupplied. More news to impact the price of oil.
Earnings Data – 70% of the S&P 500 index will report earning over the next two weeks. If they are anything like last week the parade of good news from earnings may be over. GDP is being revised lower by analyst towards the 2% level for first quarter. To put that in perspective estimates started at 3.5% in December. Last week the data was mixed with the most notable miss coming from Google (NASDAQ:GOOG) and the biggest surprise was Super Value (NYSE:SVU). Leadership from retail, healthcare and consumer staples have helped maintain the uptrend, but earnings from technology and financials will be an important indicator for the broad markets.
Taxes, Debt & Rhetoric – Today is tax day for the 55% of Americans who pay taxes (Tax Policy Center). The talk relative to the budget cuts in order to balance the annual spending deficit remain a big topic for politics, but the market continues to ignore the pending issues for now. The IMF stated the US needs to take measures to manage their debt load currently and in the future. If the IMF can see what is happening, why can’t the bureaucrats in Washington?
Banks – Bank of America (NYSE:BAC) and JP Morgan (NYSE:JPM) announced earnings last week. The result for JPM was positive, but their stock fell 5%. The results for BAC was negative and the stock fell 4.5%. This would lead me to believe regardless of what Q1 results are the direction for bank stocks is lower. Why? No loan growth (9% unemployment), no revenue growth (not lending), Billions of dollars cut in credit card revenue, residential mortgage problems, and a stagnating economy. Otherwise the outlook for banks is great! This week brings more good news and insight to the sector with more news from Citigroup(NYSE:C) and the regional banks release earnings data as well. This is a sector to watch guidance more than current earnings. Is the outlook improving relative to revenue? If so, a bottom may be established in short term. Worth watching and reviewing the data.
Busy week on tap for investors. Filter the noise from the relavent and take advantage of the resulting opportunities. Each of the areas above will potentially offer something this week we can profit from investing.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: The Clients of Money Strategies Inc. may or may not own the ETFs or Stocks mentioned in this article.