Earnings have been solid, and last week’s key economic reports supported the narrative of an improving economy with the ISM services index hitting a post-recession high at 58.7. According to Zacks, with nearly 91% of the SPX having reported, Q2 earnings have grown 8.7% year-over-year, while revenues are up 4.6%. Two-thirds of the companies beat profit expectations, and an above-average 61.4% topped revenue estimates. (ht Barron’s)
That said, if you’re looking for the proverbial Wall of Worry, look no further than Europe. The geopolitical risks surrounding Ukraine are well-chronicled. Economic woes seem to be mounting, as the Continent’s 3rd largest economy entered recession based on last week’s negative Q2 GDP print from Italy. Investors eagerly await the GDP report from Germany, as the eurozone’s economic locomotive shows signs of slowing in the wake of sanctions imposed on Russia – which curb exports from Germany. 10-year German bunds now yield 1.05%, while the German DAX has slid a full 10% off its recent 52-week high. A strong negative signal on Germany’s DAX was sent over a week ago when the index broke below its 200-day moving average for the first time in two years. Fears of either a Ukraine invasion by the Russians, the Eurozone going back into a triple dip recession, or perhaps bond market investors having much less confidence in the speed of the economic recovery here at home, are manifest in a surprisingly strong bid for US Treasuries. The 10-year UST yield ended the week at 2.42%, the low close for 2014.
September S&P futures traded near 1890 overnight, portending a big down open Friday after Barack Obama ordered military strikes in Iraq to push back the advance of ISIS. Many were surprised to see the losses dissipate, after Russian news agency Interfax reported that Russia was desirous of de-escalating the crisis in Ukraine. Bespoke deemed the markets “oversold everywhere,” with the SPX two standard deviations below its 50-day moving average, which made for a good set up for an oversold bounce on Friday. “It has gotten down to this level once over the past year (back in February), and it bounced nicely then.” As for the lack of a response to the US airstrikes in Iraq, we noted comments from Peter Boockvar, managing director at The Lindsey Group: “I understand the jitteriness surrounding this news in light of what’s going on geopolitically, but U.S. markets haven’t cared about U.S. military action in Iraq since 2003 …”
Bearish sentiment, or the expectation that stock prices will fall over the next six months, rose seven percentage points to 38.2% in this week’s survey conducted by the American Association of Individual Investors (AAII). This represents the high-water mark for 2014, and a level last seen in August 2013. Bullish sentiment came in at 30.9%, marking only the second time in 2014 that bears have exceeded bulls in the AAII survey.
This coming week is fairly light in terms of economic reports, while the pace of Q2 earnings releases slows down. It’s August, characterized by light volumes which set us up for volatile moves in either direction (like we saw last week on both Tuesday and Friday). Any number of things could happen to precipitate a big move in either direction, particularly on the geopolitical front (ISIS, Ukraine at the top of the list).
Here’s a summary of the coming week’s key economic reports …
JOLTS – Job Openings
China Industrial Production; MBA Mortgage Index; Retail Sales; Business Inventories
Initial & Continuing Jobless Claims; Export & Import Prices
PPI; Empire State Manufacturing; Industrial Production & Capacity Utilization; University of Michigan Confidence
Courtesy of Briefing.com: of the companies reporting earnings for the week of August 11 – 15 some of the bigger names include:
- Pre Market - SYY, DF, PCLN, HE, HPT, CACQ, WAC, MNKD, GOGO
- After Hours - CZR, HTHT, MTZ, VTR, CVG, NUAN, RAX, MR, NOR, TTEC, TRAK, SKH
- Pre Market - CST, VAL, FLO, TW, AER, SOL, KATE
- After Hours - URS, FOSL, KING, CREE, JDSU, VSAT, JKHY, HMIN, LQ, MYGN, FTD
- Pre Market - DE, M, AIT, PF, CSIQ, CAE, SEAS, IOC, ARES
- After Hours - CSCO, SPTN, ANW, NTAP, VIPS, NTES, EXXI, IAG, SCAI, PAAS, SLW, WX, NDLS, AZPN, OCLR, RMAX, YUME, XONE
- Pre Market - WMT, KSS, AAP, PRGO, PWE, BGG, DANG, RRGB, GK, LRN
- After Hours - JWN, JCP, AMAT, A, ADSK, SINA, EXTR, WB, PCTY
- Pre Market - JD, EL