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Earnings Season Update

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What’s in Today’s Report:

  • Earnings Season Update: Are Upside Risks Building?

U.S. stock futures are trading lower with most overseas markets as investors digest the recent run to fresh records amid rising COVID-19 cases and mostly upbeat earnings.

German PPI was hotter than expected o/n with a headline of 0.9% (E: 0.5%) but the report is not materially moving markets.

Looking into the U.S. session today, there are no economic reports and no Fed officials are scheduled to speak. There is a 52 Week T-Bill Auction at 11:30 a.m. ET, however, that could influence bond yields and ultimately stocks if the results are far from expectations.

Earnings season will continue to pick up today with JNJ ($2.31), LMT ($6.32), PG ($1.19), and TRV ($2.44) releasing Q1 results ahead of the bell while NFLX ($2.98), CSX ($0.95), and IBKR ($0.90) will report after the close.

Bottom line, markets have been trading with a risk-off tone so far this week amid a resurgence in COVID-19 cases in several global hotspots. And if the news flow regarding the latest regional outbreaks continues to deteriorate, stocks could continue to decline, potentially sharply, as the health of the recovery will come into question.

How Does the S&P 500 Get to 4500?

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What’s in Today’s Report:

  • How Does the S&P 500 Get to 4500?
  • Weekly Market Preview:  Important inflation data, bank earnings, and Treasury auctions.
  • Weekly Economic Cheat Sheet:  Inflation Wednesday, April Data Starts Thursday.

Futures are slightly lower following a “not as dovish as expected” 60 Minutes interview of Fed Chair Powell.

Fed Chair Powell was more optimistic on near-term economic growth during a 60 Minutes interview on Sunday, and while he was by no means “hawkish,” his tone was taken as less dovish than expected and that’s weighing slightly on futures.

Economically, the only notable number was EU Retail Sales which beat expectations, rising 3.0% vs. (E) 1.2%.

Today there are no economic reports and only one Fed speaker, Rosengren (1:00 p.m. ET), so focus will remain on the 10 year yield.  Today there’s a 10 year Treasury auction and tomorrow there’s a 30 year Treasury auction.  If yields can remain stable amidst this stock rally, then the S&P 500 can continue to move higher.  But, if we see a resumption of the rise in yields, expect a headwind on stocks.

What Would Make the Fed Less Dovish?

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What’s in Today’s Report:

  • What Would Make the Fed Less Dovish?

Futures are little changed following mixed economic data that showed higher inflation and underwhelming growth.

Inflation stats could be set to rise as Chinese PPI surged 4.4% vs. (E) 1.7%, and this could be the first of several higher than expected global inflation readings.

Economically, German Industrial Production missed estimates (-1.6% vs. (E) 1.5%)  but the reading isn’t moving markets.

Today the key number is the Core PPI (E: 0.2% m/m, 2.7% y/y).  Markets are expecting an uptick in inflation metrics so a slightly hot number shouldn’t move markets too much, although a much stronger than expected PPI reading will likely send the 10 year yield higher and that would be a headwind on stocks. There is also one Fed speaker, Kaplan (10:00 & 12:00 p.m. ET), but he shouldn’t move markets.

Why Did Stocks Drop Again?

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What’s in Today’s Report:

  • Why Did Stocks Drop Again?
  • The VIX Has Approached a Tipping Point

U.S. equity futures are trading higher this morning as upbeat economic data is helping offset renewed fears about COVID-19 lockdowns and the global economic recovery.

PMI Composite Flash data was better than expected overnight, especially in the EU (52.5 vs. E: 49.1) where economic lockdown concerns have weighed heavily on stocks this week.

Looking into today’s session, there are two economic releases that will be in focus early: Durable Goods Orders (E: 0.9%) and the PMI Composite Flash (E: 59.0), and it is important that we see more positive trends in the data or concerns about a slowing recovery could become a stronger headwind on risk assets in the near term.

From there, focus will shift to this week’s busy Fed circuit with several more central bank officials speaking today: Barkin (8:50 a.m. ET), Powell (10:00 a.m. ET), Williams (1:35 p.m. ET), and Daly (3:00 p.m. ET). Powell and Yellen’s continued testimony before Congress today will be the most important for stocks as investors look for further reiteration of easy policy measures for the foreseeable future.

Finally, there is a 5-Yr Treasury Note Auction at 1:00 p.m. ET and as we saw last month, a surprise outcome can shake bond markets which ultimately tends to reverberate through to equities.

Bottom line, as long as there are no surprises in the auction or in the morning economic data, and policy makers stick to their accommodative message, volatility should begin to ease, but all of the possible catalysts listed above have the potential to weigh on stocks and other risk assets today.

What Trump’s COVID-19 Diagnosis Means for Markets

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What’s in Today’s Report:

  • What the Trump COVID-19 Diagnosis Means for Markets

Futures are sharply lower following the Trump COVID-19 diagnosis.

President Trump and the First Lady tested positive for COVID-19 on Thursday, and have begin their quarantine process.  However, the White House has said it expects the President to continue in his duties as he recovers.

There was minimal economic data overnight.

For the next several days reports of President Trump’s health will drive markets, and obviously if he becomes very sick that will hit stocks in the short term.

Beyond the COVID diagnosis, we still have the jobs report today, and estimates are as follows:  Job adds:  894K, UE Rate: 8.2%.

Finally, we also get Consumer Sentiment (E: 79.0) and have two Fed speakers, Harker (9:00 a.m. ET) and Kashkari (1:00 p.m. ET), but none of that should move markets.

Tom Essaye Interviewed with Yahoo Finance on September 29, 2020

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Tom Essaye, Sevens Report Research Founder, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss what’s moving the markets on Monday morning. Click here to watch the full interview.

FOMC Preview (What Makes It Dovish Enough?)

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What’s in Today’s Report:

  • FOMC Preview (What Will Make It Dovish Enough for the Market?)
  • Why Did Stocks Rally on Monday?

Futures are moderately higher again following better than expected economic data overnight.

Chinese economic data was solid as August Retail Sales (0.5% vs. (E) 0.1%) and Industrial Production (5.6% vs. (E) 5.1%) both beat estimates.  In Europe, the German ZEW expectations index also beat estimates (77.4 vs. (E) 69.5).  Bottom line, the data implies the global economic recovery is still on going.

On the vaccine front, headlines were more mixed as the resumption of the AZN trial in the U.S. isn’t expected until the middle of this week, at the earliest.  But, markets still very much expect a vaccine to be approved by Election Day and distributed by year-end (and that remains a very optimistic assumption).

Today the looming Fed meeting (tomorrow) should keep the markets generally quiet, although we do get the September Empire Manufacturing Survey (E: 6.5), which is the first data point for September.  If it’s stronger than expected, that will further confirm the U.S. economy remains resilient despite no more stimulus, and that will help support the early rally in futures.

Tom Essaye Quoted in Barron’s on August 28, 2020

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“Now, over the medium and long term, the Fed’s average inflation target means that when cyclicals start to outperform, and when yields begin to rise, both those rallies will last longer…” writes Tom Essaye of The Sevens Report newsletter. Click here to read the full article.

Tom Essaye Quoted in Forbes on August 13, 2020

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Investors are still expecting another stimulus package will eventually get passed: “The market still wants, and very much expects, an actual stimulus bill to be signed…” according to Tom Essaye, editor of the Sevens Report. Click here to read the full article.

Tom Essaye Quoted in CNBC on August 4, 2020

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“The bottom line is that if we do see real disappointment in stimulus or the vaccine, then a 10% correction is the likely best-case scenario, and it’ll come…” said Tom Essaye of The Sevens Report, in a note. Click here to read the full article.