A Make or Break Week for the Rally

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What’s in Today’s Report:

  • A Make or Break Week for the Rally (Key Catalysts to Watch)
  • Why Last Week Was Better Than It Seemed

Futures are modestly lower following an uneventful weekend as markets digest Friday’s rally ahead of a very busy week.

The government shutdown ended on Friday but the shutdown was never an influence on stocks so the resolution isn’t going to be a positive catalyst.

There were no notable economic reports out over the weekend.

Today should be generally quiet as there are no economic reports and just one notable earnings report (although it’s an important one), CAT ($2.98).

But, barring any major surprises from CAT, investors and markets will likely spend today looking ahead to the key events coming later this week including:  FOMC Decision (Wed), Chinese Manufacturing PMIs (Thurs), Employment Cost Index (Thurs), Jobs Report (Fri) and U.S. Composite PMIs (Fri).  Those events, in aggregate, will likely decide whether we see an extension of this 2019 rally or a retracement back to previous support, so the stakes are high.

Finally, our regular editor is out through Wednesday so please excuse any higher than normal typos, etc.

Tyler Richey Quoted in MarketWatch on January 25, 2019

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Tyler Richey, co-editor of the Sevens Report Quoted in MarketWatch on January 25, 2019. His take on this market, natural gas, volatility and more. Read the full article here.

Tom Essaye Quoted in Barrons on January 23, 2019

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Tom Essaye Quoted in Barrons on January 23, 2019. His take on this unpredictable market. Click here to read the full article.

Positive News on the U.S. Consumer (Good for Stocks)

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What’s in Today’s Report:

  • Positive Commentary on the U.S. Consumer (From Someone Who Should Know)
  • EIA and Weekly Oil Analysis

Futures are moderately higher thanks to a dovish Fed article in the WSJ and more solid earnings (SBUX).

The WSJ reported that Fed officials are considering ending their balance sheet reduction earlier than expected, and that’s helped lift futures.

Economic data underwhelmed again as the German IFO Business Expectations Survey declined to 94.2 vs. (E) 97.0.

Today there are no economic reports (Durable Goods & New Home Sales won’t be produced because of the shutdown) and the earnings calendar is relatively quiet (ABBV ($1.92) and CL ($0.73) are two names we’re watching), so focus will likely remain on political headlines as there finally appears to be hints of progress at resolving this government shutdown (although the solution may only last three weeks).  If we get any positive news on the shutdown, that’ll likely add to the early rally.

A Sector With Relative Clarity (and Opportunity)

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What’s in Today’s Report:

  • A Sector With Relative Clarity (and Opportunity)

Futures are slightly higher as momentum from yesterday’s positive earnings offset more disappointing economic data.

January flash PMIs in Japan and the EU were disappointing.  The Japanese manufacturing PMI fell to 50.0 vs. (E) 52.4 while the EU Composite PMI dropped to 50.7 vs. (E) 51.4.  But, markets haven’t traded off Japanese data in over a year, and the “Yellow Vest” disruptions are weighing on French PMIs, which dragged the composite EU PMI lower, so these disappointing numbers aren’t weighing on markets as much as they normally would.

Today the big number is the U.S. Flash Composite PMI (E: 54.2), as markets are looking for more signs of economic stabilization following the loss of momentum in December.  Anything that implies stabilization will be stock positive.

We also have an ECB Rate Decision (E: No Change to Rates) and the ECB Press Conference (8:30 a.m. ET) and the key will be whether ECB President Draghi is very dovish given more disappointing economic data (he’s not expected to be materially dovish).

Finally, earnings continue and generally the season, so far, has been better than expected.  Some results we’re watching today include: INTC ($1.22), NSC ($2.30), SBUX ($0.65), WDC ($1.50).

Dow Theory Update

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What’s in Today’s Report:

  • Dow Theory Update
  • Existing Home Sales Analysis

US futures are bouncing modestly as yesterday’s spike in volatility is digested while major averages in Europe and Asia were little changed during a quiet night of trade.

Economically, Japanese Trade figures from December missed expectations adding pressure to the Nikkei o/n.

Today, there are two economic reports due to be released in the US. First the FHFA House Price Index (E: 0.3%) which is generally not very closely watched but after yesterday’s soft Existing Home Sales report, it may get some attention today.

The other report is the Richmond Fed Manufacturing Index (E: -3.0). Again, not usually a very widely followed report but after the string of soft regional Fed survey reports last month, another big miss could add downward pressure on an already fragile market today.

There are no Fed officials speaking today which leaves earnings as the other major focus with: PG ($1.21), UTX ($1.51), and SYF ($0.93) reporting ahead of the bell and F ($0.30) after the close.

Lastly, the market will remain sensitive to any developments on relations between the U.S. and China as trade headlines and growth concerns were largely viewed as the reason behind yesterday’s heavy price action.

Key Earnings Week

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What’s in Today’s Report:

  • Earnings Update and Outlook

U.S. futures are tracking global shares lower on renewed economic growth concerns after Chinese GDP hit a near three-decade low of +6.6% in 2018 while the IMF reduced 2019 global economic growth forecasts to 3.5% from 3.7%.

Furthermore, news that the U.S. is pursuing formal extradition of Huawei’s Meng Wanzhou from Canada is further weighing on sentiment towards the delicate political relationship between the U.S.-China right now.

There was more underwhelming economic data o/n as the German ZEW headline whiffed (27.6 vs. E: 43.2), underscoring deterioration in analyst confidence in the EU’s largest economy.

Today there is just one economic report to watch: Existing Home Sales (E: 5.240M) and there are no Fed officials scheduled to speak.

That will leave investor focus on earnings and U.S.-China relations. Notable earnings today include: JNJ ($1.95) before the open and IBM ($4.81), COF ($2.40) after the bell.

Time to Get More Defensive?

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What’s in Today’s Report:

  • Time to Get More Defensive?

Futures are moderately higher thanks to rising U.S./China trade optimism.

Yesterday’s WSJ article that stated U.S. officials are considering reducing China tariffs spurred a global rally, despite being disputed by administration officials.

Economic data was mildly disappointing as Japanese CPI (0.7% vs. (E) 0.8%) and UK Retail Sales (-0.9% vs. (E) -0.8%) both slightly missed estimates, although neither report is moving markets.

Today there are several earnings reports but none of the companies reporting should move the market unless the results are truly horrid.

Economically, Industrial Production (E: 0.3%) is the key report as we want to see if “hard” manufacturing activity dropped as much as the manufacturing surveys in December.  We also get an update on Consumer Sentiment (E: 97.0) and one Fed speaker, Williams (9:05 a.m. ET), who could help markets rally if he talks more about flexibility on balance sheet reduction.

Valuation Update (Better, But Not Good)

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What’s in Today’s Report:

  • Equity Risk Premium Update – Better, But Not Good
  • Updated Oil Outlook

Futures are marginally weaker following a quiet night as markets as markets further digest the 2019 rally.

Economic data was sparse although Euro Zone Core HICP (their CPI) met expectations at 1.0%, which remains near multi-month lows.

Today focus will remain on earning and we get some notable consumer companies reporting (in addition to more banks).  Some reports we’ll be watching include:  MS ($0.90), PPG ($1.10), NFLX ($0.25),and AXP ($1.79).  As has been the case so far in earnings season, the commentary on the economy will be just as important as the actual results.

We also get two notable economic reports, including Jobless Claims (E: 216K) and the Philadelphia Fed Business Outlook Survey (E: 10.0) plus one Fed speaker: Quarles (10:45 p.m. ET). Bottom line, if earnings continue to beat low expectations, stocks can grind higher for now.

An Update from Dr. Copper

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What’s in Today’s Report:

  • An Update from Dr. Copper (Mildly Encouraging)

Futures are up modestly, but off the highs as investors digest the latest Brexit drama, Chinese stimulus, and mixed economic data ahead of more key US bank earnings.

Economically, Japanese Machine Orders badly missed expectations in November (0.0% vs. E: 3.3%) pointing to soft capital spending while European inflation data was largely inline with estimates.

Today, the government shutdown is going to start affecting the flow of economic data as the December Retail report will not be released. To that point, concerns are starting to build about the economic headwinds the shutdown will have as it drags on, and eventually those worries will begin to weigh on stocks.

U.S. economic data on Import & Export Prices (E: -1.2%, -0.3%) and the Housing Market Index (E: 57.0) will still be released as scheduled however, and there is one Fed official speaking: Kashkari (1:00 p.m. ET).

On the earnings front, focus will be on financials early with: BAC ($0.63), GS ($5.37), BLK ($6.39), and BK ($0.92) all due to report ahead of the bell while two notably growth-sensitive companies: AA ($0.49) and CSX ($1.00) will report after the close.