The Week Ahead: Keyed In on Inflation

 | Aug 17, 2014 | 8:00 PM EDT  | Comments
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Stock quotes in this article:

ma

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jwn

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jcp

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aeo

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bke

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bont

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tgt

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dks

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tjx

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rost

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ua

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hd

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shld

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Most of last week saw an upward move in the stock market amid signs that the U.S. economy was improving, and that the growth wasn't quite overheated as many had expected. But, despite that "steady as she goes" view on the U.S., we were reminded on Friday that international tensions remain. Based on the more-than-seasonal lows in trading volumes, these international flare-ups should continue to cause volatile up and down days. That can be good for active, but patient, investors.

Meanwhile, the economic data over the last week included a Goldilocks-like July employment report and a weaker-than-expected headline figure for the July producer price index, among other numbers. As I touched on in The Friday Wrap, such numbers give support to the notion the Federal Reserve is unlikely to hike interest rates until mid-2015.

Still, we've seen a growing number of price increases from food and beverage companies over the last several weeks. As a result, the July CPI report -- which is due to hit Tuesday -- will be one to watch. While I expect the food component to climb, the drop in gas prices will likely have muted the overall figure over the last few weeks -- and it is also likely to temper the market's response to the report. Unless the headline figure is hotter than expected, I suspect the market reaction will be to shrug off the report.

Barring something controversial, I expect a similarly tame move this Wednesday, when the Federal Open Market Committee releases minutes to its July 30 meeting.

Retailers are the next big item that folks are set to watch this week. As we saw last week from Macy's (MA), Nordstrom (JWN) and J.C. Penney (JCP), earnings results have not been aligned across the group. Several forecasts for 2014 are being cut ahead of the back-to-school and holiday shopping seasons, so one has to be wary about owning these stocks now. We'll get more clarity from the likes of American Eagle Outfitters (AEO), Buckle (BKE) and Bon-Ton Stores (BONT) over the next few days.

That said, Target (TGT), Dicks Sporting Goods (DKS), TJX (TJX) and Ross Stores (ROST) will be the subject of greater focus. At target, new management and Canada will be under the microscope, while Dicks will be a barometer of back-to-school spending. Good results from Nike (NKE) and Under Armour (UA) bode well for Dick's quarterly results. TJX and Ross Stores are where the Cash Strapped Consumers are shopping, and that makes their volume figures important indicators as well.

10-Year U.S. Treasury Yield -- Daily
Source: StockCharts.com

Tuesday is also set to bring the latest housing data. In the last few months we've seen a slowdown in the housing market despite the drop in mortgage rates and in 10-year Treasury yields (see above chart) -- and this has led me to jettison shares of Toll Brothers (TOL) and the SPDR S&P Homebuilders ETF (XHB) from the Thematic Growth Portfolio I manage. Luckily I sold before both of these dropped in late July.

While I've adopted a wait-and-see approach to the sector, the tone here is something to watch given its ripple effect on the economy. So, even though I have no skin in the housing-stock game, this week's July data on housing starts and building permits will be on my radar screen. Commentary from Home Depot (HD) and Lowe's (LOW), both of which are due to report earnings this week, will offer added insight to the housing and construction markets.

Those reports will be ones to watch for insight into Whirlpool (WHR) and Sears (SHLD), as well, given the influence on construction jobs and building materials, as well as home furnishings and durable goods -- refrigerators, washing machines, water heaters and so on. Also keep in mind that General Electric (GE) still owns an appliance business, even though the industrial conglomerate is looking to shed it (and despite reports that it has interest from Electrolux and private-equity buyers).

Below is more detailed look at what's coming at you in the week ahead. Be sure to check back midweek for The Corner of Wall & Main, in which Lenore Hawkins and I will dish on the first half of the trading week and other key matters and thoughts, as well as how to play it all. Be sure to join us again at the end of the week for The Friday Wrap, in which we'll put the whole week in context for you.

_________________

Economic Calendar

Monday, August 18

  • National Association of Home Builders (NAHB) Housing Market Index (August)

____

Tuesday, August 19

  • Consumer Price Index (CPI) (July)
  • Housing Starts (July)
  • Building Permits (July)

____

Wednesday, August 20

  • Mortgage Bankers Association (MBA) Mortgage Index (Weekly)
  • Crude Inventories (Weekly)
  • Federal Open Market Committee (FOMC) Minutes (July)

____

Thursday, August 21

  • Initial and Continuing Jobless Claims (Weekly)
  • Existing Home Sales (July)
  • Philadelphia Federal Reserve Index (August)
  • Leading Indicators (July)
  • Natural Gas Inventories

____

Friday, August 22

  • No major reports due for release.

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Earnings Calendar

Monday, August 18

  • Cemig SA (CIG)
  • China Mobile (CMGE)
  • Urban Outfitters (URBN)

____

Tuesday, August 19

  • Dicks Sporting Goods (DKS)
  • Home Depot (HD)
  • Medtronic (MDT)
  • Elizabeth Arden (RDEN)
  • TJX Companies (TJX)

____

Wednesday, August 20

  • American Eagle Outfitters (AEO)
  • Eaton Vance (EV)
  • Hain Celestial (HAIN)
  • Hewlett-Packard (HPQ)
  • International Rectifier (IRF)
  • Lowe's (LOW)
  • Madison Square Garden Co. (MSG)
  • PetSmart Inc. (PETM)
  • J.M. Smucker (SJM)
  • Staples Inc. (SPLS)
  • Target Corp. (TGT)

____

Thursday, August 21

  • Aeropostale Inc. (ARO)
  • Buckle Inc. (BKE)
  • Bon-Ton Stores (BONT)
  • Salesforce.com (CRM)
  • Dollar Tree (DLTR)
  • GameStop Corp. (GME)
  • Gap Inc. (GPS)
  • Hormel Foods (HRL)
  • Intuit Inc. (INTU)
  • Marvell Technology Group (MRVL)
  • Ross Stores (ROST)
  • Stein Mart Inc. (SMRT)
  • The Fresh Market (TFM)
  • Tuesday Morning (TUES)

____

Friday, Aug. 22

  • Ann Inc. (ANN)
  • Foot Locker (FL)
  • Hibbet Sports (HIBB)
  • Royal Bank of Canada (RY)

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