The Week Ahead: A Fog of War

 | Oct 06, 2013 | 8:00 PM EDT  | Comments
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Stock quotes in this article:

hon

,

jblu

,

lmt

,

utx

,

ba

,

aa

,

cost

,

dfrg

,

rt

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yum

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jpm

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wfc

A chart of the stock market over the last five trading days closely resembles a roller coaster -- it's been up and down and has had some violent turns over the last few days. You know the cause: the government shutdown and the gridlock in Washington, D.C., as eyes turn to the looming debt-ceiling debate. Regardless of your politics, you have to recognize that the government shutdown is going to be a drag on the economy to the tune of 0.1% to 0.2% of gross domestic product per week.

Chief executive officers at companies like Honeywell (HON) and JetBlue (JBLU) say a prolonged shutdown of the U.S. government has the potential to jeopardize the U.S. economic rebound. Furloughs have also been announced by government contractors, including Lockheed Martin (LMT) and United Technologies (UTX), and Boeing (BA) anticipates a disruption to its delivery schedule because of approvals needed by furloughed inspectors from the Federal Aviation Administration (FAA) inspectors.

Clearly a step backwards is not what the economy needs now, and one concern I have pertains to the ripple effect that would result from rising unease and uncertainty. Already Gallup is reporting that 70% of Americans view the shutdown as a crisis or a major problem, as compared with the 56% who said the same at the height of the last shutdown in 1995. That could exacerbate the impact of the shutdown, particularly if it does indeed last until the Oct. 17 debt-ceiling line in the sand.

On Friday, I was asked on a radio program if I thought the U.S. would default come Oct. 17. I said that I expect the D.C.-style games to continue -- and that, while it may look like the country will default, it's really a massive game of chicken. I predict that, at the 11th hour, a solution will emerge.

As we chart that rough course, it means a pick-up in stock-market volatility and uncertainty. I'd remind you that next week kicks off corporate earnings season for the recently completed September quarter. Against the backdrop of the government shutdown and looming debt-ceiling conversations, I expect companies to issue conservative outlooks and forecasts when they report their results. That's another reason to think the stock market will get a little bumpier in the weeks ahead.

We could see that begin to happen as early as this Tuesday, when the third-quarter earnings season is set to officially start off with Alcoa's (AA) results. We're also due to get numbers from Costco (COST) and Del Frisco's (DFRG), as well as Ruby Tuesday (RT). These should serve as a gauge for consumer spending. Also in that category is Yum! Brands (YUM), but investors will be more tuned into the company's performance in China for a read on that economy and whether it has turned a corner. Late next week, financial stocks will start their rapid-fire earnings with scheduled reports from JPMorgan Chase (JPM) and Wells Fargo (WFC), and that will continue into the following week.

On the economic front, delays are expected for many U.S.-government-issued reports. However, we'll be privy to the Federal Reserve's thoughts behind its decision not to begin tapering stimulus when the central bank releases its minutes from the last meeting this Wednesday. All of these rear view domestic economic data will be watched with one eye only. Investors know that the longer the shutdown continues, the greater the impact of the current quarter's growth prospects, as well as those for corporate earnings.

 

___________________

Economic Calendar

(Note: Shutdown-related delays are expected for italicized items.)

Monday, Oct. 7

  • Consumer Credit (August)

____

Tuesday, Oct. 8

  • HSBC China Services Purchasing Managers Index
  • [Trade Balance (August)]
  • [Job Openings and Labor Turnover Survey (JOLTS) (August)]

____

Wednesday, Oct. 9

  • HSBC Emerging Markets Index
  • Mortgage Bankers Association (MBA) Mortgage Index (Weekly)
  • Federal Open Market Committee (FOMC) Minutes (Sept. 18)
  • [Wholesale Inventories (August)]

____

Thursday, Oct. 10

  • [Initial and Continuing Jobless Claims (Weekly)]
  • [Import and Export Prices (September)]
  • [Treasury Budget (September)]

____

Friday, Oct. 11

  • Michigan Sentiment Index (October)
  • [Retail Sales (September)]
  • [Producer Price Index (September)]
  • [Business Inventories (August)]

 

________________

Earnings Calendar

Monday, Oct. 7

  • No significant reports scheduled.

____

Tuesday, Oct. 8

  • Alcoa (AA)
  • Wolverine World Wide (WWW)

____

Wednesday, Oct. 9

  • Costco Wholesale (COST)
  • Del Frisco's Restaurant Group (DFRG)
  • Fastenal (FAST)
  • Family Dollar Stores (FDO)
  • Helen of Troy Ltd. (HELE)
  • Ruby Tuesday (RT)
  • Yum! Brands (YUM)

____

Thursday, Oct. 10

  • API Technologies (ATNY)
  • Lindsay Manufacturing (LNN)
  • Material Sciences (MASC)
  • Micron Technology (MU)
  • Safeway Inc. (SWY)
  • Marriott Vacations Worldwide (VAC)
  • Audiovox Corp. (VOXX)

____

Friday, Oct. 11

  • Infosys Technologies (INFY)
  • JPMorgan Chase & Co. (JPM)
  • Bank of the Ozarks (OZRK)
  • Wells Fargo & Co. (WFC)

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