Monday's strong open was thwarted by weaker-than-expected regional manufacturing data and a decline in treasury yields. Existing home sales were also lower than anticipated for January, citing weather and low inventory. Investors are still hoping to carry last week's momentum into March, but it will need to overcome junk bonds and rising treasury prices to do so. Oil prices rallied over 3 percent as OPEC and Nigeria hype production cuts, but for the first time this year the market failed to follow. Many analysts predicted the split, which may signal both defensive hedging and weariness with energy-driven volatility. Despite Monday's disappointing returns, ending the market's lockstep with oil has the potential to alleviate some volatility.
Key earnings reports due out this week include retailers Dollar Tree (NASDAQ:DLTR), Costco (NASDAQ:COST) and Staples (NASDAQ:SPLS) as well as the grocery store chain Kroger (NYSE:KR). Investors see strong growth potential for Dollar Tree on Tuesday, as the company streamlines its operation and seeks additional cost savings as part of its Family Dollar acquisition. Consensus calls earnings per share of $1.07 and revenues of $5.41 billion. Costco takes center stage on Wednesday. The company is still seeing rapid growth as it sells in bulk at lower prices, which continues to draw new shoppers. Analysts estimate that Costco will report EPS of $1.28 and revenues of $28.51 billion.
Thursday will see how well Kroger's fourth-quarter results meet consensus estimates of $0.54 in EPS on revenues of $26.26 billion. On Friday, the office supply store Staples is expected to report EPS of $0.28 and revenues of $5.42 billion. Analysts will scrutinize the report for how well the new leadership team is performing in its efforts to restructure the company and drive growth. In addition to reports from all these firms, guidance will also be critical. Investors have been reacting more to guidance than to results in recent weeks, such as last week's rally in Target (NYSE:TGT). Investors overlooked weak earnings and rewarded the company for its positive guidance.
Key domestic economic reports this week are the ISM and Markit manufacturing PMIs due on Tuesday. The ISM survey is expected to show a reading of 48.6, up from the prior reading of 48.2, while the Markit survey is projected to come in better at 51 and could counteract Monday's disappointing Chicago PMI. The Federal Reserve Beige Book, a summary of economic data and anecdotes from each Federal Reserve bank ahead of its FOMC policy meeting, will be released on Wednesday. Weekly unemployment claims will be out on Thursday, along with productivity and unit labor costs for the fourth quarter of 2015. Both are expected to improve from the prior estimates since GDP was positively revised last week to 1.0 percent growth. The key data for the week will be monthly jobs report and the unemployment rate for February will be released on Friday. It will be the last jobs report before the two-day Federal Reserve meeting in March. With the rise in core inflation now confirmed by the core PCE last week, a positive jobs number would signal an accelerated pace of rate hikes this year versus what investors were expecting only a few weeks ago. Financials will benefit the most from rising rate expectations, while utilities will be negatively impacted.
The meeting of G-20 finance ministers over the weekend in Shanghai did not produce any changes in overall monetary policy. China did cut its reserve requirement ratio as it tries to shore up its slowing economy. The Eurozone reported deflation fell below zero to negative 0.2 percent. This could push the European Central Bank to ease monetary policy at its March meeting, and the euro weakened on the news as a result. Tuesday will see the release of Chinese PMI manufacturing data that will reveal the current strength of the world's second largest economy, along with PMIs from the Eurozone and other key economies.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.