Shhh. Quiet. You may have been paying attention to the Greek soap opera, the crash in China's stock market or maybe even wondering how it can be a coincidence that United Continental Airlines (UAL), the New York Stock Exchange (NYX) and The Wall Street Journal all had technology glitches on the same day.
We have to admit all of those caught our attention as well, and the latter reinforced our bullish view on PureFunds ISE Cyber Security ETF (HACK). Learning that "sensitive information" concerning about 21.5 million people was obtained last year by hackers who intruded into computer networks at the Office of Personnel Management not only affirms our bullish view on HACK shares, but also underscores the need for services like those offered from LifeLock (LOCK).
Regular readers know we've been pointing out how various indicators have shown a slower-than-expected economy over the last few months. In short, the second-quarter 2015 snapback underwhelmed relative to forecasts. As of July 7, the Federal Reserve Bank of Atlanta's GDPNow puts real GDP growth (seasonally adjusted annual rate) for 2Q 2015 at 2.3%, up from 2.2% just a few days prior. We'll get the initial and official reading in a few weeks, but even those revised expectations are below the 2.8% to 3.5% forecasts back in April from both public and private-sector economists.
That brings us to the latest from the International Monetary Fund (IMF), which trimmed its global growth forecast to 3.3% this year, down from 3.5%. Interestingly enough, the ever-optimistic institution did not finger the Greek debt crisis or the recent volatility in the Chinese financial markets as the reason behind the haircut. The IMF's rationale for cutting its 2015 outlook was the weaker-than-expected U.S. economy, which it now expects to grow 2.5% this year, down from its previous view of 3.1% in April.
Turning to the week ahead, let's just say we hope you've enjoyed the relative quiet over the last two weeks because on both the economic and earnings fronts it's about to get hot and heavy. Adding to the fire will be the fallout from today's meeting of all 28 members of the EU following the latest round of Greek proposals to European finance ministers. We may not be sitting on pins and needles, but following the last few weeks of up-down market action, odds are the market will be waiting with bated breath for what may ... or may not ... happen.
On the economic front, it's one of the busier weeks with a host of June data including retail sales, the PPI and CPI inflation indicators, industrial production and a few pieces of housing data including June housing starts. These missing pieces of data will help put the final touches on 2Q GDP figures, and given the wobbly performance in May you can bet these figures will not only be sliced and diced to determine the economy's velocity, but also to guesstimate on what Fed Chair Janet Yellen and her central banker buddies may be thinking. Fortunately, we'll get more insight on the latter than usual thanks to Yellen's appearance before the House Financial Services Committee. We also get the July Beige Book, which in our view always makes for interesting reading when it comes to trying to get into the Fed's head.
If we had to pick one particular economic data point to watch amid all the others, it would be industrial production, because it has not increased on a month-to-month basis since November 2014. That's right, it hasn't increased month over month in eight months! With new export orders as reported by Markit Economics dropping for the third consecutive month in June -- thank you, strong dollar -- and June rail and truck traffic continuing to be soft, we are not looking for a pronounced upturn in June's industrial production reading. As the minutes from the Fed's June FOMC meeting called out: "Forward-looking indicators, such as new orders for these capital goods along with national and regional surveys of business conditions, pointed to only modest increases in business equipment spending in the near term." The bottom line is we continue to see any interest rate boost by the Fed coming near the end of 2015 at the soonest.
We'd also note the weaker-than-expected same-store comps from Gap (GPS) and L Brands (LB), the parent company of the Victoria's Secret, La Senza, Henri Bendel and Bath & Body Works retailers. While two retailers among a sea of others does not make a trend, it could be a sign that retail sales in June remained sluggish, much the way they have been over the previous five months. We're thinking the 15% rise in gas prices since the start of 2Q 2015 has taken a bite out of clothing and restaurant sales.
The third leg to market-driving news this week is corporate earnings. We've already received some from PepsiCo (PEP), Alcoa (AA), WD-40 (WDFC) and a few others. Based on what we've seen so far, get ready to hear the dollar get called out for either the quarterly performance, weaker-than-expected guidance or both. If this is a surprise to you, well, you must have been bunking with Rumpelstiltskin since the end of 2014.
As Versace likes to say, the frequency of earnings reports will pick up significantly, with more than 135 companies on tap over the next five days -- almost a 370% increase. We know what you're thinking, it sounds like a lot of time comparing expectations with actual results and dialing into conference calls if not reading transcripts of those calls as well as corporate earnings announcements. Fire up the Nespresso machine, it's what we'll be drinking to keep us slugging through. Another helpful item to narrow down the list of reports you want to pay attention to: We'd favor those for companies you already own, their competitors as well as contenders you've been keeping your eyes on.
Here's the shorter list of companies that we'll be watching:
-- Tuesday: CSX (CSX), Johnson & Johnson (JNJ), JPMorgan Chase (JPM), Wells Fargo (WFC) and Yum Brands! (YUM)
-- Wednesday: BlackRock (BLK), Delta Air Lines (DAL), Netflix (NFLX), Schwab (SCHW)
-- Thursday: BB&T (BBT), Google (GOOGL), Goldman Sachs (GS), PPG Industries (PPG)
-- Friday: General Electric (GE), Honeywell (HON), Synchrony Financial (SYF)
With overall S&P 500 earnings expected to contract for 2Q 2015 and the dollar still strong relative to its position a year ago, we're bracing for a bumpy ride over the next few weeks as earnings news takes the center stage. Making these reports even more important, it's the first solid look companies will share about the back half of 2015.
Get ready to rumble and revisit growth rates, forecasts and earnings expectations in the days ahead.
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 The Street's weekly earnings calendar. Enjoy the weekend and be sure to catch Lenore Hawkins Monday on America's Morning News and 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: July 13-17|
|14-Jul||NFIB Small Business Optimism Index|
|14-Jul||Retail Sales ex-auto|
|14-Jul||Export Prices ex-ag.|
|14-Jul||Import Prices ex-oil|
|15-Jul||MBA Mortgage Index|
|15-Jul||Atlanta Fed Business Inflation Expectations|
|15-Jul||Fed Chair Janet Yellen @ House Financial Services Committee|
|15-Jul||Fed's Beige Book|
|16-Jul||NAHB Housing Market Index|
|16-Jul||Natural Gas Inventories|
|16-Jul||Net Long-Term TIC Flows|