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  1. Home
  2. / Investing
  3. / Technology

The Week Ahead: Oh, the Drama!

Yellen and the Fed will be going under the microscope again.
By CHRIS VERSACE AND LENORE HAWKINS Mar 15, 2015 | 05:00 PM EDT
Stocks quotes in this article: HCP, DOC, O, QCOM, GM, AXP, AAPL, P, YELP, NFLX, LNKD, TWTR, ORCL, FDX, WSM, LEN, NKE, DRI, FRSH, MLHR

Last week was a particularly wild ride in the market as the major indices shifted from being up for the year then down to up again to finally the S&P 500 and the Dow Jones Industrial Average exiting the week down modestly year to date. 

Normally it would be rude to say, "We told you so," but over the last few weeks we've been doing what we can to alert you to what we saw as looming volatility and slower growth. In that vein, we've rattled off about the growing number of missed economic data relative to expectations, the expanding group of countries that have embarked on quantitative easing programs (now two dozen, thanks to South Korea), and the stronger U.S. dollar. We can also add the impact of winter weather and the Pacific port closure that have weighed on economic growth in the current quarter. 

Yeah, color us rude for pointing this out ahead of the herd, but when it comes to your money and investments, trying to play it safe inside the herd can be costly. Despite all the mounting evidence, it seems Wall Street is only now waking up to the realization that the economy could be victim to a renewed slump in oil prices thanks to a record surplus in U.S. crude inventories that are likely to strain the nation's storage capacity, according to the International Energy Agency. 

All it took to jolt the herd's attention, as if it suddenly stirred from a bad nightmare, was Thursday's February retail sales report, which marked the third consecutive miss despite the "benefit" of lower gas prices year over year. We're always amazed how, time and time again, Wall Street needs to be practically punched in the face in order to connect the dots that are, more often than not, right in front of its face. To us, there is little doubt over the vector and velocity of the current quarter's GDP -- both are lower compared to the December quarter. 

Thanks to QE, Wall Street has become a bizarre up-is-down-and-down-is-up place, one that thinks layoffs are good news. It is likely to see that slower growth along with no sign of inflation, such as Friday's February PPI index report, which "shocked" (as it marked the fourth straight monthly decline in the index), will be giving Janet "Ain't Tellin'" Yellen and the Fed ample room to hold off raising interest rates. Oh, we still expect Wall Street will be parsing every word, every phrase Yellen utters to get a bead on when a rate hike might happen. Brace yourselves for crisis-like headlines across cable TV! Oh, the drama! 

Candidly, when we look at all the data from the last several weeks, we expect Yellen to once again soothe all those eager ears with dovish comments that Wall Street will embrace like a warm blanket. As the herd realizes lower interest rates will be here for a while longer -- we don't expect a rate increase until September at the earliest -- big dividend payers, such as REITs like HCP (HCP), Physicians Realty Trust (DOC), Realty Income (O) and others will likely be back in vogue. The slowing velocity of the economy will only add to the number of investors doubling back on these. 

Speaking of returning capital, the trend of dividend increases and stock buyback programs continued last week, thanks to Qualcomm (QCOM), General Motors (GM) and American Express (AXP). While we tend to cheer dividend increases when they are funded by cash flow and not debt, we wonder how long until the herd realizes that earnings-per-share growth courtesy of the continued debt-funded buyback activity is not the same thing as actual net income growth. Odds are we'll get more such announcements the longer interest rates remain "low to no," but the one we're waiting on is Apple (AAPL), given its mind-boggling $178 billion in cash -- enough to buy Pandora (P), Yelp (YELP), Netflix (NFLX), LinkedIn (LNKD) and Twitter (TWTR) and still have $80 billion left over. We've heard Greece may be up for sale soon? 

Aside from the FOMC meeting, next week has several business outlooks from Markit Economics on various geographies that are sure to attract investor attention. Rounding out the economic calendar, February housing starts and several regional Fed manufacturing reports are also on tap. Given the especially tough winter weather and chilly temperatures, we would be surprised to see robust housing starts. In looking at the data, be sure to distinguish between single-family housing and multifamily trends. 

Just because many companies are about to enter the quiet period for the current quarter -- so hard to believe there are just over two weeks left -- doesn't mean we are lacking for earnings reports this week. In particular, Oracle (ORCL), FedEx (FDX), Williams-Sonoma (WSM), Lennar (LEN), Nike (NKE) and Darden (DRI) will be the ones to watch. For shoe-loving investors like Hawkins, it means digging into the results from Shoe Carnival (SCVL) and DSW (DSW) while chomping on some take-and-bake pizza from Papa Murphy's (FRSH) in a Herman Miller (MLHR) desk chair, which also report this week. 

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 - Monday, March, 16 to Friday, March 20
   
16-Mar Markit China Business Outlook
16-Mar Markit Global Business Outlook
16-Mar Markit US Business Outlook
16-Mar Empire Manufacturing
16-Mar Industrial Production
16-Mar Capacity Utilization
16-Mar NAHB Housing Market Index
16-Mar Net Long-Term TIC Flows
17-Mar Building Permits
17-Mar Housing Starts
18-Mar MBA Mortgage Index
18-Mar Crude Inventories
18-Mar FOMC Rate Decision
19-Mar Continuing Claims
19-Mar Initial Claims
19-Mar Current Account Balance
19-Mar Philadelphia Fed
19-Mar Leading Indicators
19-Mar Natural Gas Inventories
Earnings Calendar - Monday, March 16 to Friday, March 20
   
Monday, March 16
DCO Ducommun Inc De
DIIBF.PK Dorel Industrie..
ERI Eldorado Resort..
KODK Eastman Kodak C..
LWAY Lifeway Foods
PRKR Parkervision
   
Tuesday, March 17
DSW Dsw Inc Cl-a
FDS Factset Resh
FRSH Papa Murphys Hl
IOC Interoil Corp
MCP Molycorp Inc
ORCL Oracle Corp
PLUG Plug Power Inc
SKYS Sky Solar Holdi..
XONE Exone Co/the
ZBRA Zebra Tech Cl A
   
Wednesday, March 18
ALOT Astro-med Inc
ATU Actuant Corp
FDX Fedex Corp
GES Guess Inc
GIS Genl Mills
JBL Jabil Circuit
SCVL Shoe Carnival
TLYS Tillys Inc
WSM Williams-sonoma
   
Thursday, March 19
CRCM Care.com Inc
CTRP Ctrip.com Intl
ENVI Envivio Inc
LEN Lennar Corp -a
MIK Michaels Cos
MLHR Herman Miller
NKE Nike Inc-b
   
Friday, March 20
DRI Darden Restaurants
KBH KB Home
   
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At the time of publication, Versace and Hawkins had no positions in the stocks mentioned, but the Thematic Growth Portfolio that Versace manages is long QCOM, HCP and NKE.

TAGS: Investing | U.S. Equity | Consumer Discretionary | Technology

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