Just shy of the halfway point in June, the market as measured by the S&P 500 continued to recede last week from what looks increasingly like the recent peak set on May 21.
There were several happenings during those last five trading days -- headline May retail sales that were still lower than those in March; the April JOLTS report that once again raised concerns over the mismatch between available skill sets and open job slots, Twitter (TWTR) CEO Dick Costolo stepping down, and immigration questions surrounding the Trade Promotion Authority -- but the one that took center stage on Friday was the breakdown in the Greece bailout conversation. That breakdown, which included the International Monetary Fund (IMF) halting negotiations with Greece, only added fuel to the fire that was created earlier in the week when Greece said it would miss its debt repayment deadline.
With little European economic data due until the flash PMI readings from Markit Economics on June 23, between now and then as Greece goes, so go European stocks. We remain bullish on certain countries given several moths of improving economic data, and therefore the respective ETFs, like iShares MCSI Italy Index (EWI), iShares MSCI Spain Capped ETF (EWP). We recommend investors look through the Greek debacle and use any pullback to add to or add ETFs associated with those better-performing eurozone countries.
Turning to the week ahead, we enter the back half of June, which to most people means the end of school or the start of summer (depending on one's perspective), but to us it means the second-quarter 2015 quiet period has begun. As they finish up the quarter, companies will be a little less responsive and the conference calendar will also die down, which makes a great time to match up economic and other data with expected earnings results that will once again be filling the financial news. If you're thinking this seems a tad like Groundhog Day, being investors more so than traders, we are right there with you on this quarterly wash, rinse, repeat cycle.
It does mean, however, that we will attempt to garner whatever insight we can from the companies reporting results over the remaining June days. For example, will KB Home (KBH) continue the gross-margin hit that plagued Hovnanian (HOV) shares last week, as builders contend with the ramped-up use of incentives and concession to move spec-built homes? The rampant use of such incentives has hurt builder margins and pulls back the curtain on the recent uptick in single-family housing we've seen despite little to no wage growth and other limiting financial factors. Have builders started to back off spec building? This week's May housing starts report should help clue us in as well as let us know if April's strong print was an all-weather-related bounce back or not.
Last week, Versace pointed out disturbing trends in both truck and rail traffic as indicators that suggest the post first-quarter 2015 manufacturing snapback was not only short-lived, but points to excess capacity in the system. That helps explain comments put forth by last week's Business Roundtable Survey showing more CEOs expect to do less capital spending in the coming months than they did just one quarter ago. To get a bead on that this week, we'll be watching the May industrial production and capacity utilization reports as well as other regional Fed indicators, like the Philly Fed Index, that are on deck this week.
If the streak of month-over-month declines hits six months, it could be the straw that breaks the very recent run-up in the shares of companies like Paccar (PCAR) and Caterpillar (CAT), to name two, as well as weigh on other industrial data-sensitive companies like Wabash National (WNC), Parker Hannifin (PH) and Eaton (ETN).
Of course, the biggest of the data points to watch this week will be the commentary associated with the Fed's FOMC rate decision on Wednesday. That's right, it's once again Fed Wednesday, as Professor Versace tells his students. While we expect no change from the Fed, you can bet your sweet bippy that Wednesday afternoon will see more than a treasure trove of investors parsing the data looking for hints as to what the outcome could be at the July Fed meeting, as well as what indicators Chair Janet Yellen and her band of misfits are watching to determine their next course of action.
Given the data, the dollar and other factors like Friday's revelation that, despite the May PPI headline print, producer prices are still down 1.1% compared to a year ago, we continue to see more inaction than action by the Fed near term. We expect the lack of inflation to be confirmed by Thursday's May CPI report.
Below is a more detailed look at the economic data in the week ahead. For a fuller list of corporate earnings to be reported over the next five days, click here to view TheStreet's weekly earnings calendar. Enjoy the weekend and 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: Week of June 15-19
Date Release
15-Jun Empire Manufacturing
15-Jun Industrial Production
15-Jun Capacity Utilization
15-Jun NAHB Housing Market Index
15-Jun Net Long-Term TIC Flows
16-Jun Housing Starts
16-Jun Building Permits
17-Jun MBA Mortgage Index
17-Jun Crude Inventories
17-Jun FOMC Rate Decision
18-Jun Initial Claims
18-Jun Continuing Claims
18-Jun CPI
18-Jun Core CPI
18-Jun Current Account Balance
18-Jun Philadelphia Fed
18-Jun Leading Indicators
18-Jun Natural Gas Inventories
19-Jun Atlanta Fed Business Inflation Expectations
