Was that it? Was the 5.8% selloff that took place over the 12 trading days through February 3rd the extent of it? This didn’t even rise to the level of a “correction,” which calls for stocks to move down at least 10%. Last week, the SPX rose 2.3% and brought us to a 90.5% retracement of the decline over those 12 training days. Many cited short covering as a primary factor behind last week’s rally. We will have to wait and see if the “all clear” has sounded for equities …
When the market responds to bad news the way it did last week, one should take notice. That typically is a positive sign. That said, there was plenty of pretty good news last that encouraged the bulls.
Earnings reports have, by and large, been solid. FactSet reports that, of the 399 companies that have reported earnings to date for Q4 2013, 71% have beaten their mean estimate, and 66% have beaten on the top line. The blended earnings growth rate for Q4 2013 is 8.3%, with financials and materials reporting the highest earnings growth while the energy sector lags. As for guidance, 66 companies have issued negative EPS guidance while 16 companies have issued positive guidance.
Another positive, of course, was the Humphrey Hawkins testimony Fed Chair Janet Yellen gave Tuesday. The key word was “continuity.” Yellen reiterated that it will likely be appropriate to maintain the current funds rate well past the time when the unemployment rate declines below 6.5%, especially if inflation continues to run below 2%. A Federal Reserve continuing an accommodative monetary policy, with a quiescent bond market (the 10-year UST closed with a paltry 2.74% yield last week), is typically a good recipe for continued strength in the stock market.
Chinese data, although dubious, was also encouraging, with January exports and imports growing at a 10.6% and 10.0% clip, respectively, well ahead of market expectations. The proviso here: the results were so much better than forecasts that many doubt the accuracy of the reports. They certainly conflicted with declines in PMI data. European economic growth increased slightly more than expected, and there was no real negative news out of emerging markets, both of which helped equity markets here.
The one unexpected development came out of Washington: Congress averted another debt ceiling crisis by extending the debt limit, without conditions. We should now be okay here until well into 2015.
Now. the bad news…
On Friday, the Federal Reserve said that January’s industrial production fell 0.3%, the first drop since last July and weaker than the +0.2% consensus forecast. Retail sales fell 0.4% last month, another discouraging report. Many attributed the softness to weather. Revisions to the prior month’s numbers, however, when winter weather should not have been a problem, do not support this thesis. December was revised down 0.6%, and November was revised down 0.3%.
At some point, the “weather” excuse will get old, and economic data will need to show consistent improvement. This coming week will bring a few important economic reports, including housing starts and building permits (Wednesday), Philly Fed and leading indicators (Thursday) and existing home sales (Friday). On Wednesday the minutes of the last FOMC meeting are released, although this just lets us know what they were thinking at Ben Bernanke last meeting.
Bullish sentiment rebounded strongly in the latest AAII Sentiment Survey. The 12.3 percentage point rise was the largest since a 12.9 percentage point rebound on November 28, 2013. Accompanying the increase in optimism was the largest weekly drop in pessimism since August 29, 2013. This week’s AAII Sentiment Survey results:
- Bullish: 40.1%, up 12.3 percentage points; historical average of 39.0%
- Neutral: 32.5%, down 3.2 percentage points; historical average of 30.5%
- Bearish: 27.3%, down 9.1 percentage points; historical average of 30.5%
Here’s a summary of the economic reports on the docket for the coming week:
Empire State Manufacturing Survey; NAHB Housing Market Index
MBA Mortgage Index; Housing Starts & Building Permits; PPI; FOMC Minutes
Initial & Continuing Jobless Claims; CPI; Philly Fed; Leading Indicators
Existing Home Sales
Earnings Preview for the week of February 18 – 21 (courtesy if Briefing.com):
Of the companies reporting earnings for the week of February 18 – 21 some of the bigger names include:
- Pre Market - KO, DUK, MDT, WM, GPC, NI, GEL, FDP, XRAY, WWW
- After Hours - FLR, CYH, TEx, NBR, FLS, HLF, CF, HE, OII, PNRA, LZB, PBPB,
- Pre Market - DVN, MGM, SAH, TX, OCR, HST, SUNE, LAD, CG, HCN, GRMN, WAB, CNK, LL, SIX
- After Hours - ETE, SWY, ETP, MAR, SXL, CAR, WMB, WPZ, ESV, TRN, ARRS, CW, OIS, HY, TSLA,
- Pre Market - WMT, DTV, ACT, PEG, TRP, RS, HRL, CVI, CVRR, PWR, FDML, DAN, SCG, PDCO, HSNI, WLK, THI, CCO, I, HSC, DNR
- After Hours - HPQ, ESRX, JWN, AGU, TS, NEM, PPC, MHK, PCLN, MRC, KND, MRVL, VMI, INTU, SEM, GRPN, PSA, MDRX
- Pre Market - DISH, ECL, CHTR, AEE, BCC, SATS, PNW, DCI, STRZA