In the past month, the S&P 500 has fallen more than 198 points from its peak. It appears a potential bottom was put in around 1820, as the index bounced 66 points across the back half of last week to end at 1886.76. While some may split hairs and say that 9.8% drop from the Sept. 19 high to the low on Oct. 15 falls just short of a correction, we're inclined to round up and say, "Yes, the market had a correction." Trust us, we both double-majored in mathematics and economics, so we may have an idea of what we're talking about here.
What helped pacify the market this past week?
Was it a detected turn in the economies of the eurozone or in China? Nope. Was it earnings results that were better than expected, across the board and across industries? Afraid not.
Those results, in fact, remained mixed: We saw solid numbers at General Electric (GE), Honeywell (HON), CSX (CSX) and other industrial and manufacturing companies, but there were also weaker-than-expected performance at Wal-Mart (WMT), Gap (GPS) and Urban Outfitters (URBN). While some of the drop at Wal-Mart can be attributed to the fall-off in gas prices, the weakness at Gap and Urban Outfitters is clearly a flare across the consumer-spending bow of the boat. Results, commentary and outlooks from Chipotle Mexican Grill (CMG), Harley Davidson (HOG), Polaris Industries (PII), Skechers (SKX), Under Armour (UA) and Amazon.com (AMZN) -- among many others this week -- will be closely watched by the market as we gear up for holiday spending. The National Retail Federation estimates holiday spending will rise 4.5% year over year in the U.S., but it's our view that this is a bit aggressive.
So what did sway the market mentality? It was the notion the Federal Reserve may hold off finishing its efforts at tapering quantitative easing (QE). Last week, St. Louis Fed President James Bullard and San Francisco Fed President John Williams hinted the central bank may suspend its QE tapering near-term until the impacts of a weak eurozone economy recede along with those of slowing growth in China -- along with, of course, Ebola and its ripple effects.
Monday will see two more Fed officials jawboning away, and we expect similar comments from them. The bottom line is the ultra-low interest-rate sugar from the Fed is going to flow at least at modest levels through the end of 2014. This also means the likelihood of the Fed starting its interest-rate increases has been pushed back from the first half of 2015 to somewhere in the second half of the year. The markets remain highly dependent on both the actions of and lip service coming from the Federal Reserve, so keep that variable in mind as you assess changes you may make in your own portfolio.
Sifting through the rubble and comparing against your stock shopping list is always a good thing, but we continue to call for caution given the volume of earnings reports scheduled for this week, and since we're also due for our first look at how the global economies performed thus far in October. Indeed, both of these elements will be key drivers of stocks in the coming week, as will any sign of a potential firming or stimulative efforts in either the eurozone or in China. This commentary will help set the stage for Ford (F), General Motors (GM) and other domestic companies that have meaningful exposure to those markets on a sales-and-earnings basis.
From a domestic-economic-numbers perspective, housing data are what stand to rule the week ahead. Even though the yield on the 10-year Treasury bond has fallen (see chart), along with gas prices at the pump, we're still not convinced that consumers will line up to scoop up what homes are available. Commentary from Pulte Group (PHM), Ryland Group (RYL), M/I Homes (MHO) and other homebuilders and related building-product companies -- Ethan Allen (ETH), USG (USG), Domtar (UFS) and others -- will shed some light on the near-term direction of the industry. The National Association of Home Builders (NAHB) have reported a slip in builder sentiment for October, so we're not all that optimistic.
The coming week also sees a pick-up in technology companies reporting their September-quarter results. This kicks off with Apple (AAPL) after Monday's close, and as CEO Tim Cook strongly hinted last week during the company's iPad-centric event, reception of the iPhone 6 has been strong. Those results bode well for NXP Semiconductor (NXPI), which is also due to report its results this week. Other tech figures to watch include those from Microsoft (MSFT), Synaptics (SYNA), Broadcom (BRCM), Ericsson and Nokia (NOK). We'll also see defense companies -- Northrop Grumman (NOC), Raytheon (RTN) and General Dynamics (GD) -- as well as consumer-staple names that will include Colgate Palmolive (CL) and Proctor & Gamble (PG).
All told, this coming week will be extraordinarily busy on the earnings front: 130 S&P 500 companies are scheduled to report third-quarter figures. Our advice is to check back at Real Money to get the latest commentary. We'll be keeping our eyes peeled on outlooks and what they mean for consensus expectations for S&P 500 earnings not only for the current quarter, but also for 2015.
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, Oct. 20
- Federal Reserve Governor Jerome Powell speech
- Federal Reserve Governor Daniel Tarullo speech
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Tuesday, Oct. 21
- Existing Home Sales (September)
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Wednesday, Oct. 22
- Mortgage Bankers Association (MBA) Mortgage Index (Weekly)
- Consumer Price Index (CPI) (September)
- Crude Oil Inventories (Weekly)
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Thursday, Oct. 23
- HSBC Flash China Manufacturing Purchasing Managers Index (PMI)
- Markit Flash Eurozone Composite PMI
- Markit Flash U.S. Manufacturing PMI
- Initial and Continuing Jobless Claims (Weekly)
- Chicago Fed National Activity Index
- Federal Housing Finance Agency (FHFA) Housing Price Index (August)
- Leading Indicators (September)
- Kansas City Fed Manufacturing Index
- Natural Gas Inventories (Weekly)
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Friday, Oct. 24
- New Home Sales (September)
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Earnings Calendar
Monday, Oct. 20
- Apple Inc. (AAPL)
- Peabody Energy (BTU)
- Chipotle Mexican Grill (CMG)
- Gannett Inc. (GCI)
- Halliburton Co. (HAL)
- Hasbro Inc. (HAS)
- PetMed Express (PETS)
- Texas Instruments (TXN)
- VF Corp. (VFC)
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Tuesday, Oct. 21
- AO Smith (AOS)
- Broadcom Corp. (BRCM)
- Cubist Pharmaceuticals (CBST)
- Cree Inc. (CREE)
- Carlisle Cos. (CSL)
- Discover Financial Services (DFS)
- Brinker International (EAT)
- E*Trade Financial (ETFC)
- Harley Davidson (HOG)
- Idex Corp. (IEX)
- Intercontinental Hotels (IHG)
- Intuitive Surgical (ISRG)
- Illinois Tool Works (ITW)
- Juniper Networks (JNPR)
- Kimberly Clark (KMB)
- Coca-Cola (KO)
- Lockheed Martin (LMT)
- Reynolds American (RAI)
- Sonic Corp. (SONC)
- Vascular Solutions (VASC)
- VMware (VMW)
- Verizon Communications (VZ)
- Waters Corp. (WAT)
- Yahoo! (YHOO)
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Wednesday, Oct. 22
- Abbott Labs (ABT)
- Acacia Research (ACTG)
- Angie's List (ANGI)
- Boeing Co. (BA)
- B/E Aerospace (BEAV)
- Cheesecake Factory (CAKE)
- Citrix Systems (CTXS)
- Dow Chemical (DOW)
- Ethan Allen (ETH)
- Evercore Partners (EVR)
- Federal Mogul (FDML)
- Fortinet Inc. (FTNT)
- General Dynamics (GD)
- Ingersoll Rand (IR)
- iRobot Corp. (IRBT)
- Lumber Liquidators (LL)
- Lam Research (LRCX)
- Mellanox Tech. (MLNX)
- Northrop Grumman (NC)
- Norfolk Southern (NSC)
- Polaris Industries (PII)
- Ryder Systems (R)
- Rush Enterprises (RUSHA)
- Skechers USA (SKX)
- Thermo Fischer (TMO)
- Tractor Supply (TSCO)
- Tupperware Brands (TUP)
- US Bancorp (USB)
- Xerox Corp. (XRX)
- Yelp Inc. (YELP)
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Thursday, Oct. 23
- American Airlines (AA)
- Artic Cat (ACAT)
- Amazon.com (AMZN)
- Airgas Inc. (ARG)
- Cabelas Inc (BAC)
- Caterpillar Inc. (CAT)
- Chicago Bridge (CBI)
- Coca-Cola Enterprises (CCE)
- Cerner Corp. (CERN)
- Check Point Software (CHKP)
- Corelogic Inc. (CLGX)
- Carters Inc. (CRI)
- Carpenter Technology (CRS)
- Credit Suisse (CS)
- Constant Contact (CTCT)
- Cemex SA (CX)
- Cyberoptics (CYBE)
- Dana Holding (DAN)
- Deckers Outdoor (DECK)
- Dolby Lab (BLB)
- Dunkin Brands (DNKN)
- Enterprise Financial (EFSC)
- Callaway Golf (ELY)
- Freescale Semiconductor (FSL)
- General Motors (GM)
- IMAX Corp. (IMAX)
- Jetblue Airways (JBLU)
- Janus Capital (JNS_
- Leggett & Platt (LET)
- Eli Lilly (LY)
- Logitech International (LOGI)
- Southwest Airlines (LUV)
- M/I Homes (MHO)
- Mead Johnson Nutrition (MJN)
- 3M (MMM)
- Microsoft (MSFT)
- Nielsen NV (NLSN)
- Nokia (NOK)
- Nucor Corp. (NUE)
- NXP Semiconductors (NXPI)
- Pandora Media (P)
- Precision Castparts (PCP)
- Pulte Group (PHM)
- Piper Jaffray (PJC)
- Royal Caribbean (RCL)
- Raytheon (RTN)
- Ryland Group (RYL)
- Silicon Labs (SLAB)
- Sonus Networks (SONS)
- Stericycle (SRCL)
- Synaptics (SYNA)
- Teradyne Inc. (TER)
- Under Armour (UA)
- United Continental (UAL)
- Domtar Corp. (UFS)
- Union Pacific (UNP)
- USG Corp. (USG)
- Verisign Inc. (VRSN)
- Yandex NV (YNDX)
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Friday, Oct. 24
- Bristol Myers (BMY)
- Colgate Palmolive (CL)
- Cabot Oil & Gas (COG)
- Delphi Automotive (DLPH)
- Ericsson (ERIC)
- Ford Motor Co. (F)
- Flir Systems (SLIR)
- Flowserve Corp. (FLS)
- Idexx Labs (IDXX)
- Lear Corp. (LEA)
- Nasdaq OMX (NDAQ)
- Principal Financial (PFG)
- Proctor & Gamble (PG)
- Simpson Manufacturing (SSD)
- Swift Transportation (SWFT)
- United Parcel Service (UPS)
- Volvo AB (VOLVY)
- Wabco Holdings (WBC)
