The Week Ahead: A Dash of Fed and a Heap of Earnings

 | Jul 07, 2013 | 8:00 PM EDT  | Comments
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Stock quotes in this article:

aa

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leds

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yum

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fdo

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cree

Even though the summer heat has returned over the last few days, the holiday weekend is now essentially behind us -- and, with that, we're set to launch head first into earnings for the June quarter.

For those of you who were checked out during the back half of last week, we got an interesting June employment report from the Bureau of Labor Statistics. I say "interesting" because, on the one hand, nonfarm payrolls of 195,000 was stronger than expected and the last few months' figures were revised higher. At the same time, the U6 employment rate rose to 14.3% from 13.8% in May, and the bulk of the June jobs growth was in leisure and hospitality category.

Drilling down further, it was employment growth in food services and drinking places that drove most of the sequential improvement. So, while it's good to see a better-than-expected jobs report, it looks like a low-quality beat, given the lower wage and seasonal nature of those jobs.

Overall, average hourly earnings rose 2.2% year over year for June, and the average workweek was unchanged, so simple math says workers are taking home a little more money than last year. I point that out because we're due to get the June producer price index (PPI) reading late this week. Despite the recent decline in gas prices, consumers are still paying 4.2% more for gas at the pump than they did last year.

The stronger-than-anticipated jobs headline stoked thoughts that Fed stimulus tapering is on track to begin in September. Wednesday Federal Open Market Committee minutes from the June meeting should offer greater insight into what the Fed is thinking here.

Remember that many jumped the gun following recent comments from Fed Chairman Ben Bernanke, which described the scenario under which the Fed would taper. Since those comments, several Fed members have spoken up to say that tapering is not necessarily imminent. For example, William Dudley, the president of the New York Fed, shared that tapering is not "hardwired" and that the data would have to continue improving between now and September. I expect a lot of dissection of Wednesday's FOMC minutes. 

While the economic calendar is light this week, we will also see the start of earnings season Monday -- when, as usual, Alcoa (AA) is set to kick it off after the market close. As these reports start to come in, one figure to watch will be the earnings-growth rate in S&P 500 companies. After average year-over-year profit growth of 6.2% and then 5.4% in the past two quarters, current expectations call for a second-quarter climb of just 2.9%. That's on year-over-year revenue growth of 1.6%, according to analysts polled by Thomson Reuters. 

Aside from Alcoa, some of the company earnings reports that I'll be paying closer attention to this week include those from SemiLEDS (LEDS), Yum! Brands (YUM) and Family Dollar Store (FDO). SemiLEDs will offer some insight into the LED market, including demand and pricing, which will help set the tone for Cree's (CREE) earnings. So far this year, Cree shares have been on a tear -- and, while the outlook for LED demand is favorable, these shares tend to trade in sync with the company's gross margin trends.

Yum! Brands, for its part, is bound to offer some insight into China. That country has once become a key concern, of course, given the recent data that points to a far slower economy since the start of 2013. As for Family Dollar, I'll be closely watching the revenue line with my Cash Strapped Consumer investing theme in mind. If the company delivers more than the expected consensus revenue forecast of $2.57 billion, I'll see it as confirmation of the theme. 

Here's a more detailed look at what's ahead this week:

 

__________________

Economic Calendar

Monday, July 8

  • Consumer Credit (May)

____

Tuesday, July 9

  • [No major economic releases]

____ 

Wednesday, July 10

  • Mortgage Bankers Association (MBA) Mortgage Index (Weekly)
  • Wholesale Inventories (May)
  • Federal Open Market Committee (FOMC) Minutes (June 19 Meeting)

____

Thursday, July 11

  • Initial  and Continuing Jobless Claims (Weekly)
  • Import and Export Prices (June)
  • Treasury Budget (June)

____

Friday, July 12

  • Producer Price Index (June)
  • Michigan Sentiment Index (June)

 

__________________

Earnings Calendar

Monday, July 8

  • Alcoa (AA)
  • WE-40 Company (WDFC)

____

Tuesday, July 9

  • FranklinCovey (FC)
  • Helen of Troy (HELE)
  • Wolverine World Wide (WWW)

____

Wednesday, July 10

  • Adtran (ADTN)
  • American Greeting Corp. (AM)
  • Fastenal (FAST)
  • Family Dollar Store (FDCO)
  • Material Sciences Corp. (MASC)

____

Thursday, July 11

  • API Technologies (ATNY)
  • SemiLEDs Corp. (LEDS)
  • NovaGold Resources (NG)
  • Peregrine Pharmaceuticals (PPHM)
  • PriceSmart, Inc. (PSMT)
  • YUM! Brands (YUM)

____

Friday, July 12

  • Independent Bank Corp. (INDB)
  • JPMorgan Chase & Co. (JPM)
  • Bank of the Ozarks (OZRK)
  • Webster Financial Corp. (WBS)
  • Well Fargo & Co. (WFC)

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