You've heard us say more than a few times over the last year, but once again we have to say: the past week had been quite a wild ride indeed. Thanks to the Swiss National Bank's move that decoupled its currency from the euro and restored the free float of its currency, after a three-year trading cap. Even though stocks rose Friday, for the week, all the major indices closed in the red, leaving them down for the third week in a row.
How bad was the fallout from the Swiss move? When a veteran hedge fund manager like Marko Dimitrijevic decides to close a flagship fund -- Everest Capital's Global Fund -- because of losses sustained after the Swiss currency decision, you know the decoupling was both unexpected and pain-inducing.
Exiting the week, the CBOE Volatility Index (VIX), which measures expectations for swings in the S&P 500, closed the week at 20.95 on Friday, well above its 10-year average of around 20 and its 2014 average of 14.2. As you can imagine, we expect market volatility to remain elevated, given what's ahead this week. Earnings season tends to be a fairly frenetic one, but the this is a compressed week. There's the holiday weekend, along with Thursday's European Central Bank meeting, and Friday's rash of global flash PMI data. That is going to make for a doozy of a week.
Even though we'll get several housing industry statistics this week, in the form of the National Association of Home Builders (NAHB) Housing Market Index and December Housing Starts, we already know from KB Home (KBH) and Lennar (LEN) that margin concerns will weigh on homebuilders and their shares -- the homebuilding stocks.
As we learned with last week's disappointing December Retail Sales Report, consumers are being far more careful with their spending than most expected. That speaks to the underlying issues of low to no wage growth, and rising costs ex-energy for both companies and individuals alike. While we expect the tax credit, like the drop in gas prices, to spur incremental spending, it takes a lot more than that to jumpstart a sluggish housing market.
The week's focus will undoubtedly shift from oil to Thursday's ECB meeting, which is increasingly expected to result in not just a big, but supersized, stimulus package to revive the stagnant Eurozone. How this will be funded and what the long-term implications are hinge on the details.
Having seen the correlation between monetary easing to stock market ripping in the U.S., we need to look at Eurozone-centric companies and investments. At least a basket of them, in the likes of iShares Europe ETF (IEV) or the SPDR STOXX Europe 50 ETF (FEU). If the stimulus package unleashed by ECB President Mario Draghi is indeed supersized, it will more than likely pressure the euro even further, which means more downside for Guggenheim CurrencyShares Euro Trust (FXE). To us, the pre-emptive move by the Swiss to decouple from the euro ahead of the upcoming ECB policy meeting is a sign of what's to come for the euro.
The one "positive" to the ECB meeting is that it puts Friday's flash PMI data focus on the China and the U.S. China is in focus because of the reported manufacturing contraction in the December data. For the U.S., the question is whether or not the slowing rate of growth reported in the fourth-quarter 2014 data continued into 2015.
As we've started to see over the last few days, the "as expected" factors of plunging oil prices, the dollar, and slower growth are affecting corporate earnings. Schlumberger (SLB) joined the growing number of energy companies that have cut earnings expectations, announced layoffs, or project pushouts. With OPEC standing firm on production levels, we expect to hear more of this from the likes of Baker Hughes (BHI), Halliburton (HAL), and others, as earnings season heats up.
One of Versace's big areas of focus is ecosystem investing, and that means watching the ripple effect of falling oil, both good and bad. Those downstream waves led Precision Castparts (PCP) to cut its December-quarter expectations. Again, we expect more of this, as we march deeper into earnings season.
So far, six companies in the S&P 500 index have issued EPS guidance for first-quarter 2015. Of these six companies, four have issued negative EPS guidance, and two have issued positive EPS guidance. We realize those companies equate to just more than 1% of the overall index, and that means we'll get a better picture as we hear from 54 S&P 500 companies (including 8 Dow 30 components) this week.
Some of the more closely watched reports will be from IBM (IBM), Johnson & Johnson (JNJ), American Express (AXP), Delta Airlines (DAL), Rockwell Collins (COL), General Electric (GE) and Honeywell (HON). Commentary from those last two companies, which are multinational in nature, will be insightful when it comes to the dollar and their views on the global economy.
The pain experienced by energy and those downstream companies we mentioned from the drop in Texas Tea should spell profit for Southwest Airlines (LUV) and Delta Airlines. What we will be listening for in those calls is management's view on potential operating leverage in the coming quarters.
Last week, CSX (CSX) issued an upbeat view on the domestic economy for 2015, and we'll see if Kansas City Southern (KSU) and GATX (GMT) echo CSX's rising spending commentary for rail equipment. Helping solidify that view means listening to other companies this week, like United Rentals (URI), whose utilization rates reflect the velocity and vector of the U.S. economy.
Below is a more detailed look at what's coming at you in the week ahead. Be sure to check back midweek for our column, in which we will dish on the first half of the trading week and other key matters and thoughts, as well as how to play it all.
|Economic Calendar, January 19-23|
|20-Jan||NAHB Housing Market Index||Jan|
|20-Jan||Federal Reserve Gov. Jerome Powell||Speech|
|21-Jan||MBA Mortgage Index||Weekly|
|22-Jan||Governing Council of the ECB: monetary policy meeting|
|22-Jan||FHFA Housing Price Index||Nov|
|22-Jan||Natural Gas Inventories||Weekly|
|23-Jan||Existing Home Sales||Dec|
|23-Jan||HSBC Flash China Manufacturing PMI||Jan|
|23-Jan||Markit Flash France Composite PMI||Jan|
|23-Jan||Markit Flash Germany Composite PMI||Jan|
|23-Jan||Markit Flash Eurozone Composite PMI||Jan|
|23-Jan||Markit Flash US Manufacturing PMI||Jan|
|Earnings Calendar, January 19-23|
|Monday, January 19|
|US Stock Market Closed|
|Tuesday, January 20|
|AMD||Advanced Micro Dev|
|DAL||Delta Air Lines|
|JNJ||Johnson & Johnson|
|MTB||M&T Bank Corp|
|SAP||SAP Ag Adr|
|Wednesday, January 21|
|AXP||Amer Express Co|
|DLB||Dolby Lab Inc-a|
|FFIV||F5 Networks Inc|
|FITB||Fifth Third Bk|
|PNFP||Pinnacle Fin Pt|
|SQBK||Square 1 Fin-a|
|TCBI||Texas Cap Bcshs|
|Thursday, January 22|
|ALK||Alaska Air Grp|
|BGG||Briggs & Stratton|
|CBU||Commnty Bk Sys|
|COF||Capital One Fin|
|ETFC||E Trade Finl Cp|
|JNS||Janus Cap Grp|
|RJF||Raymond Jamess Fin|
|SIVB||SVB Financiall Gp|
|UAL||United Cont Hld|
|URI||United Rentals Inc|
|Friday, January 23|
|BK||Bank Of NY Mellon|
|KSU||Kansas City Southern|
|STT||State St Corp|