So many landmines: ECB bond-buying plan, multiple earnings reports, another leak from the Fed that it intends to raise rates no matter what, the fallout from the Chinese margin debacle, an attempt to get higher rates for the rich, including those related to stocks, and no end in sight to the pumping of more oil.
In that scenario, you could see how the setup's real negative, unless the earnings can deliver -- and so far, we have seen only a handful of companies deliver decent earnings.
The difficult earnings -- or at least difficult compares of earnings -- starts right away this morning with the Halliburton (HAL) report. It's up against a pretty darned good Schlumberger (SLB) report, one that indicated that only North America was and IS going to be hard hit by the decline in pricing.
The problem is, that's Halliburton's strength, so we are not going to see a repeat of the SLB quarter or the market's positive reaction to it. That means you could see a reversal of this rally, especially if oil loses its fragile stability as it seemed to do in yesterday's light trading.
Post-close close we hear from two totally problematic stocks. The first is Netflix (NFLX) and all I can say is it better be good, because this stock got not one, but two important upgrades last week and the hot money surged into the stock each time. The upgrades keyed on two things, the new show line-up -- which includes Better Call Saul, the spin-off of the phenomenally successful Breaking Bad and -- international sign-ups, of which we can only guess about.
It doesn't help, though, that we are hearing the magic number of 100 million subs, a hurdle that, while far out, can be revised down, but probably not revised up after we see the number.
All this week the high fliers and what I call the cult stocks were taken to the woodshed, with Tesla (TSLA) being the real sore point, in part because of oil and in part because of weak China sales. It didn't help that CEO Elon Musk was totally glib about the numbers, giving plenty of grist for the bear.
Some these high fliers rallied back late Friday, but that group has been among the most sick of all stocks since the year began.
If Netflix is strong, then you are going to see money cycle back to all of the companies with lofty valuations. Yes, Netflix does have that power. So this one will have an overpowering influence on that cohort.
The second problematic offer: IBM (IBM), the most beaten-up stock in the Dow, a real dog. We need to hear either that at last IBM has an upside surprise, or we get a restructuring of some meaning that brings out value. If not, the stock could be headed to $125. That kind of decline will call into question Warren Buffett's loyalty to the enterprise, and he is a huge holder of the equity. If it is disappointing, there will be rumors that he will sell. The last thing he will do is tell us. That will only come after he's done selling. Possible saving grace: on any decline of consequence, IBM will yield above three. But then again, this one's become an untrustworthy stock, which may mean an untrustworthy dividend.
Wednesday we get results from a key Dow stock, UnitedHealth (UNH), which fits the bill of this market spectacularly. United Health, a health maintenance organization, is part of the most bullish cohort, and if UNH says good things about medical costs and growth in the age of Obamacare, then you are going to see a lift in all things health-related. I can't believe how important this report's going to be, especially because Goldman Sachs (GS) urged people last week to buy it ahead of the quarter.
We also hear from United Rentals (URI), a construction rental company that has been crushed by the decline in oil because it happens to have an oil service arm. Once again, if United Rentals says good things about the rest of its businesses and says it won't be hurt by oil service much, you might see an eruption to the upside in the stock and all things machinery. United Rentals has not disappointed for ages. I think it can pull off a good quarter again.
Finally, I want to listen to General Dynamics (GD), because the strongest group other than health care in this market has been defense. Will the company talk about how other countries are now arming themselves and not just relying on our country as their protectors? I think yes and I want to own this stock ahead of the quarter. This and Northrop Grumman (NOC) and Lockheed Martin (LMT) are three remarkable stocks that have been huge winners for years now, even as you would expect with the sequester they would be users, as is the case with the widely panned Boeing (BA), precisely because of its difficult military business and the poor execution of it that has caused so many difficulties of late.
Many of the higher minded people are not going to pay attention to companies on Thursday, they are going to be hanging on ECB head Mario Draghi's every word. I can't control what he says, but I can control which stocks can be bought on some market-wide decline if, or perhaps more accurately, when he disappoints. So you might want to buy some Union Pacific (UNP) if it gets hit, as this terrific railroad has been crushed because, besides many cargos, it also ships a lot of fracking sand. I think that UNP's got a good story to tell and if it gets hammered, this uniquely America First stock might be a place to buy. I also want to hear about the port slowdowns in California. How damaging have they been to revenues?
You want problematic: Starbucks (SBUX) has gone down almost every time in reports in recent memory. Plus this time it will have to explain what will happen now that Try Alstead is departing as chief operating officer. Lots of people thought he was the heir apparent of Howard Schultz. That now no longer seems viable.
Finally I want to listen to Verizon (VZ) because it yields 4.7% and I think that yield's very safe. But I worry about the price war that's gripping the business. Any sign that the war is abating will send buyers into this one, and you will be able to get a terrific bond market equivalent stock at a very cheap price.
Friday we've got two key stocks that will give us an excellent overview of a host of industries, Honeywell (HON) and General Electric (GE). I am itching to buy Honeywell before the quarter if it drops to $95 because CEO and neighbor Dave Cote has been about as bankable as any exec I follow, but it's a big thicket to run through before we get to Friday. Honeywell will also give us a good read on autos, oil, aerospace and non-residential construction. I bet Dave's upbeat.
GE's more problematic. The company has changed its mix and skewed it more toward energy and away from finance. I don't mind that it moved from finance. I have always wanted GE's finance arm to be in support of manufacturing. But oil and energy infrastructure where the recent acquisitions have occurred, that's just a bad do. I am particularly concerned about the $13.5 billion paid to the French company Alstom. Its book of business, like all engineering and construction companies, has a heavy skew to energy products. Just an untimely acquisition made before the collapse in oil not that long after GE paid $3.3 billion to buy Lufkin, a maker of oil field equipment.
We haven't had any big initial public offerings for a while, but this week we get a deal for Box, a red-hot commercial storage play, as opposed to Drop Box, which is more consumer and less lucrative.
I think Box will be a homerun and re-ignite hopes for a pretty dormant IPO market. Red hot; instant premium.
All of this is occurring within a backdrop of, once again, needless rancor between the president and Congress on taxes, and a belief that Europe's not going to be constructive, or at least constructive enough, and oil is supposed to continue to fall.
In other words, a suboptimal setting for the week ahead.
