Our "old friend" volatility has returned to the stock market. Not unexpected, given some of our concerns, but it still can make the most seasoned investor sigh when it happens.
The causes themselves may change, but the impact still resembles a roller-coaster ride at your favorite amusement park. Of course, we're not here for amusement, but rather delivering profits and insights, so climb aboard and let's get going!
We capped the week with a Friday headline that centered on something we already knew -- the economy slowed during the December quarter. Thank you, third print, for that quarter's GDP. You may have detected a smirk and some sarcasm in that last sentence (or at least we hope you did). We already knew this and are more than well aware of the continued slowdown in the current quarter. As we've discussed here, that has given the Fed more runway when it comes to holding off raising interest rates.
That being the case, we continue to see more companies announce or upsize stock buyback programs. These programs, of course, improve earnings-per-share optics by shrinking the share count, and it shouldn't be lost on you that many executive compensation plans are tied to EPS growth. Just this week, McCormick (MKC), Yahoo! (YHOO), Red Hat (RHT), Brown Forman (BF.A), Merck (MRK), NeuStar (NSR), Lowe's (LOW) and more than a few others announced such plans. We continue to like your PowerShares Buyback Achievers ETF (PKW) and TrimTabs Float Shrink ETF (TTFS) as ways to capitalize on what we call buyback-palooza.
Sweetening that longer interest rate timetable, we learned Friday morning that corporate profits for the December quarter fell the most since 1Q 2011. What caused this? Several factors, but the standout was the stronger dollar, which rose 7.8% against other currencies between June and December. It has continued its climb in 2015 and, as we've discussed previously, it's been one of the factors behind companies such as IBM (IBM), Intel (INTC), Honeywell (HON), Procter & Gamble (PG) and others citing tougher business conditions year over year in 2015. We suspect we will be hearing much more about this in the coming weeks as March quarter earnings begin to ramp up soon after the coming Easter holiday. In other words, expect more volatility ahead, but also know that we'll be prepared with a shopping list and other measures to make the most of it.
Turning to the week ahead, we've got a few things going on above and beyond the normal flow of weekly economic data and earnings. As you can see from the usual calendars we include near the bottom, there's more than a fair amount of economic data coming out this week, including the March employment report. All told, more than 30 indicators that include personal income and spending, several manufacturing surveys and regional PMI data.
Following last week's blitz of March Flash PMIs, there's bound to be some similarities in the final PMI data this week, but we'll zero in on below-headline data (orders, employment) ahead of Friday's employment report. To us, the February personal income and spending report bears watching to see if consumers have started to spend those big gas savings, but also because the last two reports disappointed on the savings side. It's that kind of data that fuel skepticism in Hawkins' eyes about housing.
Eyeing the March employment report, our view remains unchanged over the last few months -- it's the quality of the jobs created and wages that matter more than the actual number of jobs created during the month. In between these two economic data bookends, midweek closes out trading for the month of March, which also puts a cap on 1Q 2015. What makes Friday's employment report stand out among others is the stock market will be closed that day in observance of Good Friday. That will tone down the reaction and talking-head chatter you've become used to on Jobs Friday, but we'll still get the usual ADP, Gallup and Challenger data buildup that will have economists fine-tuning their job-creation and unemployment-rate forecasts. For greater insight, we'd suggest peering deeper into the ISM manufacturing report's employment sub-index.
You don't have to be the world's greatest detective (yes, that's a thinly veiled reference to Batman, Versace's favorite comic book character) to think this Friday could be a day to watch for March quarter earnings pre-announcements. What better day to get it done than a Friday when Wall Street is barely around to slip in some bad news? Not to point fingers, but if the White House can do a three-day-weekend Friday document dump, we suspect a few public companies could do the same to reset quarterly expectations amid a slow business news cycle.
Corporate earnings this week will be rather ho-hum, with no real market-moving companies reporting. When faced with such weeks, we tend to look at potential insights from those that are reporting. For example, what is Carmax (KMX) seeing in new demand and how much is being fueled by sub-prime auto loans? What's Movado's (MOV) view on the Apple Watch and is it planning a salvo of its own similar to TAG Heuer teaming with Google (GOOGL) and Intel? What's Monsanto's (MON) take on crop conditions ahead of the spring planting season? The answer could make the case for Potash (POT), Mosaic (MOS), Agrium (AGU), CF Industries (CF) and other fertilizer companies. Was SanDisk's (SNDK)'s miss company-specific or the sign of something more pervasive? Micron's (MU) report should shed some light.
Enjoy the upcoming long weekend, for before too long we'll be hip deep in the next iteration of a different aspect of investor Groundhog Day -- the quarterly earnings cycle. 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 30 - Friday, April 3|
|30-Mar||PCE Prices - Core|
|30-Mar||Pending Home Sales|
|30-Mar||Dallas Fed Manufacturing Survey|
|31-Mar||Case-Shiller 20-city Index|
|1-Apr||HSBC China Manufacturing PMI|
|1-Apr||Markit Eurozone Manufacturing PMI|
|1-Apr||Markit US Manufacturing PMI|
|1-Apr||JPMorgan Global Manufacturing PMI|
|1-Apr||MBA Mortgage Index|
|1-Apr||ADP Employment Report|
|1-Apr||Gallup US Job Creation Index|
|2-Apr||Challenger Job Cuts|
|2-Apr||Gallup US Payroll to Population|
|2-Apr||Natural Gas Inventories|
|3-Apr||Nonfarm Private Payrolls|
|Earnings Calendar: Monday, March 30 - Friday, April 3|
|Monday, March 30|
|OTIV||On Track Innov|
|Tuesday, March 31|
|LIME||Lime Energy Co|
|MOV||Movado Grp Inc|
|SAIC||Science App Int|
|SORL||Sorl Auto Parts|
|Wednesday, April 1|
|IMH||Impac Mrtg Hldg|
|Thursday, April 2|
|KMX||Carmax Gp (cc)|
|PERY||Perry Ellis Int|
|Friday, April 3|
|DQ||Daqo New Energy|
|SYRG||Synergy Res Cp|