In some respects, things have started to settle down in the stock market after this week's two-day Fed meeting. The outcome of that meeting was pretty much as we expected -- no action by the Fed this week, a softening of language given the current tone of the domestic economy, and sufficient wording that has pushed back rate-hike timing expectations to October. Our take on this is any eventual decision will remain data-dependent, with the wild card to watch being oil-induced deflation.
Even though the U.S. oil rig count fell again last week, its 15th straight weekly decline, we know in the coming months we will have even more surplus oil that will pressure prices, but exactly how far oil prices may fall remains to be seen. Naturally, we expect a bunch of doom-and-gloom-ers to come out of the woodwork making all sorts of prognostications ... and our hunting scope has already turned up a few of those varmints.
Our plan, and the one we recommend you stick to, is to remain vigilant and let the data talk to us/you in order to chart a sure-footed course in the coming months. So far, that strategy has served us well and there is no reason to think it won't continue to do so.
No doubt you've seen the fallout of the Fed's decision -- a quick whipsaw in Wednesday's market that finished the day up big, with the upward move continuing Thursday and into Friday as the U.S. dollar dipped and gold jumped higher -- not exactly a shock given the inverse relationship between the two. The bottom line is the stock market once again ran into the warm embrace of the Fed's low interest rate blanket, with all three major indices back in the green on a year-to-date basis.
As we discussed previously, higher-dividend-paying stocks, including REITS like Physicians Realty Trust (DOC), HCP (HCP), Realty Income (O) and Alexandria Real Estate Equities (ARE) and others, as well as high-paying non-REIT stocks such as Philip Morris International (PM) and American Railcar (ARII), to name a few, moved higher last week. No surprise as the low-to-no interest rate environment will be with us much longer than the Wall Street herd expected -- if only they listened to the data the way we do!
With the Fed news come and gone, the next inflection point for the market will be the quarterly earnings season that will be upon us in the next few weeks. The combination of weaker-than-expected economic data, the severe winter storms and Arctic cold, and Pacific port closure has already led to a reduction in earnings expectations, but the Donald Rumsfeld known unknown will be the degree of impact to be had by the strong dollar. Over the last few weeks, a growing list of companies has cited the dollar as the cause du jour of their ills, which was capped off by Tiffany (TIF) last week.
Current expectations now call for S&P 500 earnings to contract 3% in the March quarter and 2% during the first half of 2015. Tracing the data back, there has been a more than sizable swing in earnings expectations for the S&P 500 group of companies for the current quarter -- from +4% year over year at the start of the year to the current 3% contraction expectation. We suspect there will be more than a few surprises when that actual reporting begins, and this is where we issue a friendly warning to be on guard over the next two weeks for negative earnings pre-announcements.
Turning to the week ahead, we have more February housing data hitting, but following the "shocking news" that February housing starts were weaker than expected, we already suspect February existing-home sales will be rocky relative to expectations. Many will chalk it up to winter weather, and while that will be a factor, we can't forget the wage picture and mortgage originations weakness. Be it new or old, you still need a mortgage to buy your house -- at least most of us do.
Also ahead, there will be ample manufacturing data thanks to the March Flash readings from Markit Economics and the durable-goods orders report. The question to be answered from the Markit indicators is whether the vector and velocity for economic activity in China, the Eurozone and here at home stayed the course in March, or was there a shift in respective vectors or velocities? We also have the February CPI reading coming in, and we expect it will be rather similar to the PPI reading that showed continued price erosion.
Finally, while it won't be a big surprise late in the week, we will see the final revision for 4Q 2014 GDP -- remember, it was already revised down to 2.2% from 2.6%. Candidly, some may get all focused on this new GDP print, but to us it's the drop between the last quarter and the current one that matters more.
In terms of corporate earnings, with less than a handful of trading days left in the quarter, we're really hitting the bottom of the barrel, but there are still several reports investors should keep their eyes on. One of our favorite Dividend Dynamo stocks, spice and marinade company McCormick (MKC), will be reporting, and we'll be right there to see how spicy it is. Keeping with food, ConAgra (CAG) and Cosi (COSI) as well as Sonic (SONC) are also on tap.
Two of the more closely watched names are Lululemon (LULU) and Restoration Hardware (RH). The shifting consumer preference to "athleisure" has been a boon to Under Armour (UA) and Nike (NKE), with both of them and others looking to attack LULU's style. Even Carrie Underwood is the spokeswoman for a new line of yoga-inspired clothes. Even though these companies stand to benefit from falling input costs (cotton and other), we'll be listening to comments on the increasingly intense competitive playing field.
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.
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| Economic Calendar: Monday, March 23 - Friday, March 27 | |
| 23-Mar | Existing Home Sales |
| 24-Mar | Markit Flash Japan Manufacturing PMI |
| 24-Mar | HSBC Flash China Manufacturing PMI |
| 24-Mar | Markit Flash France Composite PMI |
| 24-Mar | Markit Flash Germany Composite PMI |
| 24-Mar | Markit Flash Eurozone Composite PMI |
| 24-Mar | Markit Flash US Manufacturing PMI |
| 24-Mar | CPI |
| 24-Mar | Core CPI |
| 24-Mar | FHFA Housing Price Index |
| 24-Mar | New Home Sales |
| 25-Mar | MBA Mortgage Index |
| 25-Mar | Durable Orders |
| 25-Mar | Durable Goods ¿ex transportation |
| 25-Mar | Crude Inventories |
| 26-Mar | Initial Claims |
| 26-Mar | Continuing Claims |
| 26-Mar | Natural Gas Inventories |
| 27-Mar | GDP - Third Estimate |
| 27-Mar | GDP Deflator - Third Estimate |
| 27-Mar | Michigan Sentiment - Final |
| Earnings Calendar: Monday, March 23 - Friday, March 27 | |
| Monday, March 23 | |
| CHRS | Charming Shoppe |
| GPRK | Geopark Ltd |
| LUB | Luby's Inc |
| Tuesday, March 24 | |
| CBK | Christopher&bnk |
| DGLY | Digital Ally In |
| GIII | G-iii Apparel |
| HDS | Hd Supply Hldgs |
| MKC | Mccormick & Co |
| SONC | Sonic Corp |
| Wednesday, March 25 | |
| APOL | Apollo Group |
| ASND | Ascend Comm Inc |
| DXLG | Destination Xl |
| FIVE | Five Below Inc |
| LNN | Lindsay Corp |
| PAYX | Paychex Inc |
| PSUN | Pac Sunwear Cal |
| RHT | Red Hat Inc |
| SCS | Steelcase Inc |
| Thursday, March 26 | |
| ACN | Accenture Plc |
| AEHR | Aehr Test Sys |
| CAG | Conagra Foods |
| COSI | Cosi Inc |
| FRED | Freds Inc |
| GME | Gamestop Corp |
| INPH | Interphase |
| LULU | Lululemon Athlt |
| PVH | Pvh Corp |
| RH | Restoration Hdw |
| SCHL | Scholastic Corp |
| SIG | Signet Jewelers |
| WGO | Winnebago |
| Friday, March 27 | |
| BBRY | Blackberry Ltd |
| FINL | Finish Line-cla |
