Last week closed the books on the month of April, and thanks to a market that drifted lower over the last few trading sessions, April added a hash mark in the red column for 2015 for all three major market indices.
As we've discussed with you, the bout of weaker-than-expected economic data, dollar concerns and March-quarter corporate earnings have weighed on the market. Year to date, the indices are still in positive territory, particularly the Nasdaq Composite Index, but next week brings another deluge of economic data and even more earnings reports.
Before we get to what's ahead, the misses relative to expectations that have been racking up in February, March and early April continued as we closed out the month. The initial GDP figure for the March quarter was softer than expected, personal income was flat in March and spending, while up, once again fell short of expectations. New data from Gallup show that 39% of those surveyed are "spending less," up from 37% this time last year. Moreover, nearly three in 10 Americans (29%) say this will become a new, normal pattern. Not good for retailers and restaurant stocks as they and others are facing higher salaries per the employment cost report for the first quarter of 2015. Who thought all that talk of minimum-wage hikes would have no effect?
We're also seeing a growing number of companies cut capital spending plans. The fallout from lower oil and gas prices has led to layoffs, falling rig counts and spending cuts from the likes of Chevron (CVX), Exxon Mobil (XOM), Gazprom, Royal Dutch Shell (RDS.A), Hess (HES), Conoco Phillips (COP) and others. Not surprising, but as we tiptoe through the March-quarter earnings season we're learning that companies like Intel (INTC) and Taiwan Semiconductor (TSM) are slashing spending and the ripple effect is hitting companies such as Applied Materials (AMAT) and Coherent (COHR) as well as their suppliers, which include II-VI (IIVI) and GSI Group (GSIG).
While it's easy to be all caught up in a particular company's results, we have to remember to ask, "Who benefits? Who gets hurt?" when combing through the results in order to connect the dots. Investors should not think in terms of a market shock like oil prices being good or bad, but rather always think in terms of who wins and who loses from such a shift.
Recently, Versace talked about investing in companies you can understand -- the business, advantages and how they make money -- and it seems that advice was rather timely. This past week, there were several that he had dubbed "confounding" that were hard hit -- LinkedIn (LNKD), Twitter (TWTR) and Yelp (YELP). Was it any wonder that LinkedIn shares were down more than 23% Thursday night on weak guidance? Much like Twitter, which suffered both weak numbers and a botched earnings release. Yelp offered both weak earnings and a disappointing outlook, its shares getting clobbered in the process, dropping 24%. We prefer companies that have businesses we can understand when it comes to making money, particularly if they are the beneficiary of a pain point, disruptive technology, demographic shift or some other tailwind that lets them slide into the slipstream.
Turning to the week ahead, we've got even more earnings reports on tap -- more than 80 S&P 500 companies -- and a healthy plate of economic data as well. On the latter front, we'd put the upcoming reports into two buckets -- the global economy in the first half of the week and jobs in the back half. Monday kicks things off when Markit Economics publishes its more detailed PMI reports. The initial flash reports painted a less-than-optimistic picture of China, Japan and the U.S., with the Eurozone improving, but restrained by activity in Germany and France.
We'll be digging deep into the new order, backlog, pricing and employment data as well as the more granular and stand-alone country reports. Even though Hawkins lives in Italy, it's Versace who has been more bullish and stepped up with iShares MSCI Italy Index ETF (EWI) shares.
Ahead of the April employment report on May 8, we'll get the usual data flow that will result in rejiggered expectations ahead of the government's take on job creation and wages during the month. We continue to focus on wage growth and the quality of jobs created as well as the relationship between the number of jobs created to the number of people leaving the labor force.
As Hawkins has pointed out previously, when thinking on job creation and economic growth prospects, the sheer size of the labor force today compared to a decade ago, the aging of the population and looming retirement crisis, and ballooning number of people getting some form of government assistance need to be factored into that calculus. In our darker moments, it makes us wonder how the U.S. economy can reach sustained economic escape velocity.
On the earnings front, the good news is we have far fewer S&P 500 companies reporting their results this week -- "just" 80 compared to more than 160 last week. The bad news is we still have more than 1,600 companies in aggregate issuing results in the next five weekdays. Among that horde, there are ones to zero in on.
With the Comcast (CMCSA)-Time Warner Cable (TWC) deal scuttled and Apple (AAPL) as well as Hulu getting more aggressive in streaming media, what's next for the cable and entertainment giant? Are next-generation services deploying as expected, and if not, what does that mean for set-top box makers Motorola Solutions (MSI), Cisco (CSCO) and others?
Several food companies report this week, including Denny's (DENN), which should shed some light on our wage concerns as well as consumer spending. Helping fill in that spending picture will be results and comments from both Coupons.com (COUP) and Groupon (GRPN). Groupon has beaten expectations over the last few quarters, but we've also seen some hefty insider selling the last few months, which is enough to suggest not jumping on board ahead of the results. Also helping to add more texture and definition to consumer spending are TripAdvisor (TRIP) and Priceline (PCLN). Are more consumers taking advantage of the strong dollar and heading abroad, or are sky-high airline costs curbing the travel bug?
Kellogg (K) and Whole Foods (WFM) are also on deck this week, with the latter setting the stage for results from both United Natural Foods (UNFI) and WhiteWave (WWAV). Other notables to watch include Tesla (TSLA) and Alibaba (BABA) as well as Caesars Entertainment (CZR) following the huge miss and dividend cut at Wynn Resorts (WYNN).
Below is a more detailed look at the economic data in the week ahead. For a more detailed list of corporate earnings to be had over the next five days, click here to view The Street's weekly earnings calendar. Be sure to check back for our midweek 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, May 4 - Friday, May 8|
|4-May||HSBC China Manufacturing PMI|
|4-May||Markit Eurozone Manufacturing PMI|
|4-May||Markit Greece Manufacturing PMI|
|4-May||JPMorgan Global Manufacturing PMI|
|4-May||Gallup US Consumer Spending Measure|
|6-May||MBA Mortgage Index|
|6-May||Fed Chair Speech|
|6-May||ADP Employment Change|
|6-May||Unit Labor Costs - Prel|
|7-May||Challenger Job Cuts|
|7-May||Gallup Payroll to Population|
|7-May||Natural Gas Inventories|
|8-May||HSBC Emerging Markets Index|
|8-May||Nonfarm Private Payrolls|