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Earnings Still Matter

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What’s in Today’s Report:

  • Earnings Still Matter: What Apple’s Guidance Cut Means for Markets

Stock futures are higher with global shares this morning as new cases of the coronavirus in China continue to fall while hopes for stimulus support tentative risk-on money flows.

China’s government is reportedly connecting IT companies with manufacturing facilities to help supply chain operations return to normal as soon as possible while speculation for more stimulus measures continues to rise.

Looking into today’s session, there are two economic reports to watch: Housing Starts (E: 1.420M) and PPI (E: 0.1%), and a slew of potential Fed catalysts.

The main focus will be the FOMC Meeting Minutes due out at 2:00 p.m. ET however there are also multiple Fed officials schedule to speak: Bostic (8:10 a.m. ET), Mester (8:30 a.m. ET), Kashkari (11:45 a.m. ET), Kaplan (1:30 p.m. ET), and Barkin (4: 30 p.m. ET).

The big risk for the market is any sort of hawkish surprise as investors have priced in a consistently dovish Fed for the foreseeable future and that remains one of the primary support pillars for stocks trading at current multiples.

Tom Essaye Quoted in CNBC on February 11, 2020

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“It’s still an opportunity for a surprise, and given an expected perma-dovish Fed is one of the two pillars of this rally, we need to watch Powell’s…” wrote Tom Essaye, editor of the Sevens Report. Click here to read the full article.

Jerome Powell

What Outperforms If Stocks Trade With a 20X Multiple?

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What’s in Today’s Report:

  • What Outperforms If Stocks Trade With a 20X Multiple?

Global equity markets are rallying as the spread of the coronavirus continues to slow while statistics show that Sanders victory in the New Hampshire primary increases the odds of a “market-friendly” Trump reelection in 2020.

Eurozone Industrial Production was soft in December with the headline falling -2.1% vs. (E) -1.8% but optimism for a 2020 economic rebound is offsetting the poor data point.

There are no notable economic reports today however there are two Fed speakers ahead of the bell: Harker (8:30 a.m. ET) and Daly ( 9:00 a.m. ET), while Powell will testify before Congress for a second day (10:00 a.m. ET).

Outside of the Fed speakers today, the Treasury will hold a 10-Yr Note auction at 1:00 p.m. ET and as has been the case recently, any sizeable moves in the bond market, especially that impact the yield curve, could influence stock trading in the afternoon.

Tyler Richey, co-editor at Sevens Report Research Quoted in MarketWatch on February 10, 2020

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“Energy traders are focused on the coronavirus right now, trying to gauge how it has, and will, affect demand in China, supply internationally, and ultimately how OPEC+ will adjust…” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch. Click here to read the full article.

China flag

Commodities Update and Powell Preview

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What’s in Today’s Report:

  • Powell Testimony Preview
  • Commodity Bears and a Gold Bull

Stock futures and most international equity markets are higher today as the spread of the coronavirus reportedly slowed to a two week low in China and investors looked ahead to Powell’s testimony before Congress today.

Economically, the NFIB Small Business Optimism Index rose 1.6 points to 104.3 vs. (E) 103.2 in January underscoring continued positive sentiment among U.S. business owners.

Today, there is just one economic report: JOLTS (E: 6.775M) which will leave investors primarily focused on Powell’s Testimony before the House Financial Services Committee at 10:00 a.m. ET and it will be important for the markets that he remains decidedly dovish with his commentary.

In addition to Powell, both Quarles (12:15 p.m. ET) and Bullard (1:30 p.m. ET) will speak in the early afternoon, Wall Street time.

Lastly, there is a 3-Yr Note Auction at 1:00 p.m. today and the results could affect the yield curve (specifically the 10s-2s) and as has been the case over the last 9 months, any significant moves in the curve could impact equity markets.

Tom Essaye Quoted in Unseen Opportunity on February 7, 2020

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But that hasn’t exactly been reflected in this morning’s trading activity. Some analysts, like The Sevens Report founder Tom Essaye, believe that the jobs gain was already priced-in by automated trading firms.

“I don’t think it was anything surprising because we had very good ADP number and good jobless…” Essaye said. Click here to read the full article.

Health Technician

Tom Essaye Quoted in CNBC on February 7, 2020

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Worried Healthcare Technician

“I don’t think it was anything surprising because we had very good ADP number and good jobless claims. So people were expecting a good number. Overall, what the jobs number is saying about the economy is what we already know…” said Tom Essaye. Click here to read the full article.

How Far Are Investors Willing to Stretch?

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What’s in Today’s Report:

  • How Far Are Investors Willing to Stretch?
  • Weekly Market Preview:  Wuhan virus updates, Fed testimony.
  • Weekly Economic Cheat Sheet:  An Important Look at Consumer Spending This Week

Futures are slightly higher following a quiet weekend of news.

Wuhan virus related fears receded further over the weekend as the virus continued to spread, but at a slower pace than before and experts think the transmission rate of the disease has peaked.  Additionally, factories in China will gradually reopen this week, potentially limiting any economic fallout.

Economic data was sparse overnight although Chinese CPI rose 5.4% vs. (E) 4.9%, which should reduce hopes of any additional, large scale stimulus from Chinese authorities.

Today there are no economic reports and no Fed speakers, so focus will remain on any Wuhan virus headlines.  The key right now is the factory re-openings in China.  As long as there isn’t any news that implies factory re-openings will be delayed beyond this week (and in doing so put more pressure on the economy) than Wuhan virus related fears should continue to decline.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Why Have Stocks Rallied?

Global equities rallied overnight and stock futures are trading higher today after China reduced tariffs on $75B worth of U.S. goods, spurring optimism for a “phase two” trade deal and further easing concerns about the coronavirus outbreak’s impact on the global economy.

Outside of trade news, OPEC+ has agreed to cut their collective oil output target by 600K b/d to help support oil prices which crashed into a bear market this week on Wuhan coronavirus fears.

Today, there are two economic reports to watch: Jobless Claims (E: 215K) and Productivity and Costs (E: 1.5%, 1.2%) while two Fed officials will speak: Kaplan (9:15 a.m. ET) and Quarles (7:15 p.m. ET).

Additionally, there are a few earnings releases due out including: TWTR ($0.28), BMY ($0.88) and UBER (-$0.68), however given the latest trade-war news, the markets will remain largely focused on China’s decision to cut tariffs and any new developments regarding the coronavirus outbreak.

Market Multiple Update

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What’s in Today’s Report:

  • Market Multiple Update

U.S. stock futures and global equities are solidly higher this morning thanks to emerging reports of breakthrough treatments for the coronavirus outbreak however details on the potential “cure” are limited at this time.

Economic data was mixed overnight as global Composite PMI data modestly topped expectations but Eurozone Retail Sales disappointed in December (-1.6% vs. E: -0.4%).

Today, there are three economic reports to watch starting with the first release of “jobs week,” the ADP Employment Report (E: 154K) which will be followed by International Trade figures (E: -$48.1B) and the ISM Non-Manufacturing Index (E: 55.2).

There is also one Fed official scheduled to speak after the close: Brainard (4:10 p.m. ET) and a few key earnings releases to watch: MRK ($1.14), GM ($0.01), QCOM ($0.85), and MET ($1.40).

As long as there are no major surprises from those potential catalysts, the market is likely to remain focused on the coronavirus outbreak and any emerging details regarding the potential breakthroughs in treatment that were reported overnight. Given the lack of specifics and the near-term overbought status of stocks here, the risk of a “sell the news” reaction does exist today.