To say the last few days have been volatile -- well, that would be quite the understatement, in our opinion. Not only has the International Monetary Fund (IMF) cut its growth expectations for the global economy for this and next year, but it has also warned of a potential triple-dip recession in the eurozone. At the same time, growth expectations for China have slipped and there are several geopolitical wild cards, including battles with the Islamic State militant group in the Middle East and the Ebola outbreak.
A recent World Bank study estimated that, if the Ebola epidemic is not contained quickly, by the end of 2015 it could cost Liberia 12% of its gross domestic product (GDP) and Sierra Leone 8.9%. The World Bank goes on to estimate that, if the outbreak spreads more widely -- to neighboring countries with larger populations and economies -- the two-year financial cost could reach $32.6 billion. No wonder shares of safety-garment manufacturer Lakeland Industries (LAKE) have been on a tear.
The combined impact of these factors amounted to several days of 100-plus point gyrations in the major market indices, something we have not seen in some time. Understandably, even though the Federal Reserve is going to keep interest rates on U.S. Treasury bonds low for some time, people are nervous.
While it's easy to get caught up in the negativity and fear, there is a silver lining to be had in the quite steady drop in oil prices. We've already started to notice the subsequent drop in gas prices at the pump, which are down year over year and more than 10% lower than their June peak.
In fact, odds are pretty good that Versace's graduate students at the New Jersey City University School of Business -- several of which shared paying $2.98 per gallon recently -- will see even lower prices amid slower global growth and surplus reserves in the Middle East. This is a boon for consumers and a likely, but in our view modest, boost to consumer spending. At the same time, though, it's an ache in the proverbial back of energy companies such as Noble Energy (NE).
Getting back to the fear-and-greed reading, the logical question we need to ask is: How do these fear levels stack up against those of the past, and has the market pulled back sufficiently at this point to signal a buy opportunity?
Let's deal with the first of that two-part question. If we look at the longer-term trend of the CNN Money Fear & Greed Index, we find it to be at its lowest level for he last few years. Similarly, the CBOE Volatility Index, better known as the VIX, has also popped higher, revisiting levels not seen since late 2012. These metrics would suggest that the market is in the worst part of the storm, but we have reason to believe the volatility will continue at least a little while longer.
Remember, we are entering the heart of the September-quarter earnings season, and in the upcoming week 52 companies listed in the S&P 500 will report their results. More than a few folks will offer their take on the current quarter, and in our view company guidance will be more cautious than usual, given the slowing global economy and the recent jaunt higher in the U.S. dollar -- which we recapped in last Wednesday's Corner of Wall & Main.
Looking at 2015 expectations for S&P 500 earnings, the consensus view calls for an 11.6% increase vs. this year's results, according to FactSet. At the current moment, we'd have to say this looks aggressive, and we think companies are likely to lay the groundwork to rein in expectations. Also keep in mind that expectations for third-quarter S&P 500 earnings started off at up 9% in early July, per FactSet, and as of last week they were up 4.5%.
On the earnings docket this week are several financial firms -- JPMorgan Chase (JPM), Citigroup (C), PNC Financial (PNC) and Wells Fargo (WFC), to name a few. On the industrial side of things, General Electric (GE), Honeywell (HON), CSX (CSX), and Kansas City Southern (KSU) are on tap. GE and Honeywell's results should reflect the strengthening domestic manufacturing economy, but it's the prognosis on Europe and China that will likely take center stage amid the discussion and outlook from those two companies.
Meanwhile, commentary on the tone of rail traffic and capital-spending plans from CSX and Kansas City Southern could result in a shift in railcar sentiment following the sharp pullbacks in shares of Trinity Industries (TRN) and American Railcar (ARII). For the prognosis on the domestic economy, look to utilization rates at United Rentals (URI) this week.
Turning to the technology sector, Intel (INTC), IBM (IBM), Google (GOOG), and Taiwan Semiconductor (TSM) should offer collectively offer insight on what's to come for the personal computer, smartphone, tablet and cybersecurity industries.
Lastly, there is the one stock to watch that will capture a googolplex of headlines -- Netflix (NFLX). With just over 10% of the float short, Netflix shares could be in for a bumpier ride than usual this week.
It's not all earnings this week. Several economic data streams will be worth watching, as well, including Hawkins' favorite -- housing -- but Versace will be watching the producer price index (PPI) more closely. Both Versace and Hawkins plan on running through Wednesday's Federal Reserve Beige Book for more commentary on the employment and wage situations across the 12 Federal Reserve districts.
Below is a more detailed look at what's coming at you in the week ahead. Be sure to check back midweek for The Corner of Wall & Main, 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, October 13
- U.S. Holiday -- Columbus Day
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Tuesday, October 14
- National Federation of Independent Business (NFIB) Small Business Optimism Index
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Wednesday, October 15
- Mortgage Bankers Association (MBA) Mortgage Index (Weekly)
- Retail Sales (September)
- Producer Price Index (PPI) (September)
- Empire State Manufacturing Index (October)
- Business Inventories (August)
- Federal Reserve's Beige Book (October)
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Thursday, October 16
- Initial and Continuing Jobless Claims (Weekly)
- Industrial Production (September)
- Capacity Utilization (September)
- Philadelphia Fed Index (October)
- National Association of Home Builders (NAHB) Housing Market Index (October)
- Natural Gas Inventories (Weekly)
- Crude Inventories (Weekly)
- Net Long-term Treasury International Capital (TIC) Flows (August)
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Friday, October 17
- Housing Starts (September)
- Building Permits (September)
- University of Michigan Sentiment Index (October)
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Earnings Calendar
Monday, October 13
- U.S. Holiday -- Columbus Day
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Tuesday, October 14
- Citigroup (C)
- Del Frisco's (DFRG)
- Domino's Pizza (DPZ)
- Intel Corp. (INTC)
- Johnson & Johnson (JNJ)
- JPMorgan Chase (JPM)
- Stanley Furniture (STLY
- Wells Fargo (WFG)
- Wolverine Worldwide (WWW)
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Wednesday, October 15
- ASML Holdings (ASML)
- American Express (AXP)
- Bank of America (BAC)
- Blackrock Inc. (BLK)
- CSX Corp. (CSX)
- eBay Inc. (EBAY)
- KeyCorp (KEY)
- Las Vegas Sands (LVS)
- Netflix (NFLX)
- PNC Financial (PNC)
- WD 40 Co. (WDFC)
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Thursday, October 16
- Advanced Micro Devices (AMD)
- BB&T Corp. (BBT)
- Briggs & Stratton (BGG)
- Badger Meter (BMI)
- Capital One (COF)
- Cypress Semiconductor (CY)
- Delta Air Lines (DAL)
- Danaher Corp. (DHR)
- Dover Corp. (DOV)
- Google (GOOGL)
- Goldman Sachs (GS)
- Grainger (GWW)
- IBM (IBM)
- Mattel Inc. (MAT)
- Orbital Science (ORB)
- Philip Morris International (PM)
- PPG Industries (PPG)
- Snap-On Inc. (SNA)
- SanDisk (SNDK)
- Supervalu Inc. (SVU)
- Taiwan Semiconductor (TSM)
- UnitedHealth (UNH)
- United Rentals (URI)
- Winnebago (WGO)
- Xilinx Inc. (XLNX)
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Friday, Oct. 17
- Athenahealth (ATHN)
- Bank of New York Mellon (BK)
- Comerica (CMA)
- General Electric (GE)
- Honeywell International (HON)
- Kansas City Southern (KSU)
- Morgan Stanley (MS)
- Schlumberger (SLB)
- Synchrony Financial (SYF)
- Textron (TXT)
