You're probably only just now coming off Valentine's Day, or perhaps you've just gotten your 50 Shades of Grey fix. Either way, we are once again getting you prepped for the week ahead.
In our view, perspective is always helpful, and looking over the last week, all three major stock market indices put in respectable gains, moving them even further into the green for 2015. Would-be euphoria over an announced path to peace for Ukraine, more easy-money policies (yes, we mean you, Sweden!), the Bank of England's commentary that implied inflation would not pick up until 2016 and several key earnings surprises more than offset another weak retail sales report for January.
Of the three domestic major market stock indices, it was the Nasdaq Composite Index that rallied the hardest as earnings from Cisco Systems (CSCO), Whole Foods (WFM) and others bested expectations. The index was also helped by Amazon.com (AMZN) shares, which benefited from continued online shopping gains per the January retail sales data, as well as Expedia's (EXPE) bid for Orbitz (OWW).
Cybersecurity stocks, such as FireEye (FEYE), Palo Alto Networks (PANW) and others climbed in response to President Obama signing an executive order today aimed at encouraging companies to share more information about cybersecurity threats with the government and each other. Mitigating that good news, Cheesecake Factory (CAKE) and Panera Bread (PNRA) echoed McDonald's (MCD) weak top line and higher cost commentary.
While we're jawing on the Nasdaq's move, let's not forget that Friday's market close saw the S&P 500 finish at a new record high of 2,096.99. Viewed slightly askew, it means the index closed Friday trading at 17.4x 2015 earnings expectations. Regular readers know we're keeping a close eye on the mismatch between the S&P 500's valuation and earnings growth, which is shaping up to be the weakest in several years. Even after another few dozen S&P 500 companies reported their quarterly results last week, the most recent data from FactSet put 2015 earnings growth at only 3.1% for the S&P 500. Even the most bullish bull has to have a little voice in the back of his or her brain wondering how much higher the market can go on that level of growth.
We're asking a more direct question: How long will that mismatch continue?
In some respects, it comes down to figuring when all the good news to be had is, well, had. The European Central Bank stimulus has been announced, as has reduced interest rates in other regions, a road to peace in Ukraine looks likely, Greece and the EU -- or the new word "Grexit" -- have yet to be sorted out, but as of this writing it appears some progress is being made. Federal Reserve Chair Janet Yellen will speak on Feb. 24, and odds are she will continue at least for a little while longer the overly dovish stance. In our view, this week's PPI report will give the Fed more fire cover to hold off any interest rate movement.
At some point, however, the market will once again expect the Fed will raise rates, we'll start to see the impact of shutdowns along the Pacific ports, as well as the toll severe winter weather is taking, particularly in the Midwest and the Northeast. In other words, soon after the dust settles on December quarter earnings, we'd expect analysts and economists alike to sit down and sharpen their view on the current quarter. We already know it will be far slower than 4Q 2014; now it's a question of how much slower.
With one more day to go in your holiday weekend, odds are you're looking forward to another day off from both work and the market. Not that Versace likes being a Debbie Downer, but the flipside is we will have another shortened trading week on our hands. The good news is we finally see a slowdown in the number of companies reporting quarterly results, but with just over 100 S&P 500 companies yet to issue said reports, we're only just now coming to the edge of the earnings forest.
Following on the commentary from restaurant stocks, this week we'll be looking for confirmation on protein costs from Restaurant Brands (QSR), Potbelly (PBPB), Jack in the Box (JACK), Noodles & Co. (NDLS) and Denny's (DENN).
Is the oil-related hit to railcar manufacturers warranted? Tune in to Trinity Industries (TRN), American Railcar (ARII) and FreightCar America (RAIL) to find out.
Where are consumers opening their wallets and spending? Virgin America (VA), Cinemark Holdings (CNK), AMC Entertainment (AMC), Hyatt Hotels (H), Nordstrom (JWN), Avis Budget (CAR) and Norwegian Cruise (NCLH) should shed some light on the subject.
Will Equinix (EQIX) and Rackspace (RAX) ride the Cisco wave after last week's better-than-expected results?
Underneath all those questions and others, we're watching one of Hawkins' favorite topics -- the impact of share buybacks on earnings. While it's a little too early to tell the exact impact on 2015 earnings expectations, we'd be willing to wager it's only helping put some lipstick on the pig that would be even slower EPS growth.
The compressed week also means the velocity of earnings reports will be a little faster than last week. Last week we said January retail sales would be THE report of the week, and we are now saying that January housing starts and January industrial production (both out Wednesday) will be the feature economic reports of the week. While multifamily housing starts have been relatively flat over the last few months, single-family housing starts have been all over the place, but that hasn't stopped the homebuilders like Toll Brothers (TOL) from climbing 10% or so over the last month. Let's see if those moves were warranted or if they're overdone.
Below is a more detailed look at what's coming 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, February 16-February 20|
|16-Feb||US Stock Markets Closed - Presidents Day|
|17-Feb||NAHB Housing Market Index||Feb|
|17-Feb||Net Long-Term TIC Flows||Dec|
|17-Feb||E-Commerce Retail Sales||4Q 2014|
|18-Feb||MBA Mortgage Index||Weekly|
|19-Feb||Natural Gas Inventories||Weekly|
|20-Feb||Atlanta Fed Business Inflation Expectations|
|Earnings Calendar, February 16-February 20|
|Monday, February 16|
|US Stock Markets Closed - Presidents Day|
|Tuesday, February 17|
|FOSL||Fossil Grp Inc|
|MGM||Mgm Resorts Int|
|PES||Pioneer Egy Svc|
|USAT||Usa Tech Inc|
|VDSI||Vasco Data Sec|
|Wednesday, February 18|
|ANGI||Angies List Inc|
|ARRS||Arris Group Inc|
|CF||Cf Indus Hldgs|
|DUK||Duke Energy Cp|
|H||Hyatt Hotels Cp|
|HLT||Hilton Ww Hldg|
|JACK||Jack In The Box|
|KEYW||Keyw Holding Cp|
|LOPE||Grand Canyon Ed|
|MANT||Mantech Intl -a|
|OMI||Owens & Minor|
|TMICY.PK||Trend Micro Inc..|
|VA||Virgin America ..|
|VNO||Vornado Rlty Tr|
|WTS||Watts Water Tec|
|Thursday, February 19|
|ABX||Barrick Gold Cp|
|BRC||Brady Corp Cl A|
|BRCD||Brocade Comm Sy|
|CAR||Avis Budget Grp|
|CDR||Cedar Realty Tr..|
|DAN||Dana Holding Cp|
|HRL||Hormel Foods Cp|
|JRVR||James River Gp|
|MRO||Marathon Oil Cp|
|MRVL||Marvell Tech Gp|
|NDLS||Noodles & Co|
|SIX||Six Flags Entmt|
|TMUS||T-mobile Us Inc|
|TRN||Trinity Inds In|
|Friday, February 20|
|AUQ||Aurico Gold Inc|
|CHH||Choice Hotels I..|
|COG||Cabot Oil & Gas|
|DE||Deere & Co|
|MHK||Mohawk Inds Inc|
|MRC||Mrc Global Inc|