MARKET SNAPSHOT: Stocks Brace For Volatility In Earnings Deluge; Fed Meeting Looms
July 23 2017 - 10:14AM
Dow Jones News
By Wallace Witkowski, MarketWatch
Nearly 200 companies on the S&P 500 to report results
With nearly a fifth of quarterly earnings results out, investors
are divided on how early corporate reports are serving as an
indicator of the overall health of the U.S. economy, and that could
contribute to a volatile week as stocks linger near record
highs.
On Friday, stocks finished lower
(http://www.marketwatch.com/story/nasdaq-win-streak-in-doubt-as-stock-futures-limp-ahead-of-ge-honeywell-2017-07-21)
with the Dow Jones Industrial Average declining 0.3% for the week,
and the S&P 500 index and the Nasdaq Composite Index posting
weekly gains of 0.5% and 1.2%, respectively.
Earnings so far are confirming less-than-stellar economic data
recently, said Paul Nolte, portfolio manager at Kingsview Asset
Management. While some early reporting banks topped profit
expectations, loan activity is still not robust, while revenue
weakness
(http://www.marketwatch.com/story/ibm-continues-to-promise-a-rosy-future-while-reporting-a-stagnant-present-2017-07-18)
from companies like International Business Machines Corp.(IBM) are
cause for concern, he said. Plus, a less-than-rosy profit outlook
(http://www.marketwatch.com/story/ge-cuts-costs-but-shares-hit-by-weak-outlook-2017-07-21)from
General Electric Co.(GE) on Friday added to concerns.
Some of the economic factors being confirmed by earnings so far
are weak inflation, and a softening of industrial production
numbers like the Fed's Philly manufacturing report
(http://www.marketwatch.com/story/philly-fed-manufacturing-report-shows-slowing-growth-in-july-2017-07-20)
and Empire State manufacturing index
(http://www.marketwatch.com/story/empire-state-manufacturing-index-retreats-in-july-from-two-year-high-2017-07-17),
Nolte said.
In fact, that weakness may find its way into commentary from the
Federal Reserve's two-day Federal Open Market Committee meeting,
which finishes up on Wednesday. Nolte said he's going to be
concentrating on comments concerning unraveling the Fed's $4.5
trillion balance sheet and how the Fed may start to favor that as a
tightening measure over rate hikes.
With respect to the overall market, Nolte expects a continuation
of the weak dollar , and how that will make international stocks
more attractive. As investors continue to prop up record prices in
U.S. stocks for lack of a better alternative, Nolte sees an
inevitable correction in the works, but cautions that there's no
real way to time it.
"The market is like a balloon floating around looking for a
pin," Nolte said.
Read:Fed's tightening plans not definitively derailed by wave of
soft data
(http://www.marketwatch.com/story/feds-tightening-plans-not-definitively-derailed-by-wave-of-soft-data-2017-07-14)
On the flip side, that may be a glass-half-empty viewpoint.
Financial stocks finished lower for the week, with the Financial
Select Sector SPDR ETF (XLF) off 0.5%, following major bank reports
but the sector is still poised for double-digit earnings gains this
season even in a low-interest rate environment, said Karyn
Cavanaugh, senior market strategist at Voya Financial.
"The reaction to banks was that people didn't like the
composition of the earnings," Cavanaugh said. "The bottom line is
that financials have been getting the dirt sandwich lately, and
they're poised for gains once there is a policy change."
With regards to the Fed's meeting, Cavanaugh said it would be
important to note if the Fed's tone pivots from its recent dovish
bent. Following perceived dovishness from Fed Chairwoman Janet
Yellen before Congress last week had a hand in boosting markets,
but the Fed is also mindful it needs to build up its toolbox to
deal with the next economic downturn.
"If the Fed appears more hawkish, then that could rile markets,"
Cavanaugh said. "The Fed's intent on raising rates because they
need the dry powder, that's probably the most important thing."
Nearly 200 companies on the S&P 500 are expected to report
in the coming week. Among the largest companies reporting are
Google parent Alphabet Inc.(GOOGL)(GOOGL) on Monday; McDonald's
Corp.(MCD) and AT&T Inc. (T) on Tuesday; Facebook Inc.(FB),
Coca-Cola Co.(KO) and Boeing Co.(BA) on Wednesday; Amazon.com
Inc.(AMZN), Comcast Corp.(CMCSA), Intel Corp. (INTC) and Procter
& Gamble Co.(PG) on Thursday; and Exxon Mobil Corp.(XOM) ,
Chevron Corp.(CVX) and Merck & Co.(MRK) on Friday.
Earnings for the S&P 500 are tracking at an estimated 7.2%
growth for the second quarter with about 20% of companies having
already reported, according to John Butters, senior earnings
analyst at FactSet.
That figure, however, can be a little misleading given that
energy earnings are expected to rise more than 300% from the
year-ago quarter. Only the tech sector and the financials sector
are expected to post double-digit profit growth with gains of 10.4%
and 10.1%, respectively. Seven out of 11 sectors are expected to
turn in year-over-year growth in the low single digits or
worse.
(END) Dow Jones Newswires
July 23, 2017 09:59 ET (13:59 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.