Some would say volatility returned to the stock market last week, seeing as all three major stock market indices took more than a bit of a tumble. Keep in mind, however, that this has come after several weeks of upward moves -- a period that saw the S&P 500 climb more than 11% off its mid-October low.
As the index has approached overbought territory, we have shared our concerns about the market. In our experience, such pronounced and rapid moves tend to bring out something close to what we can only describe as the "Chicken Little" factor. In addition, trading volume has been rising on market downturns and falling amid rallies, something that had given us further reason to worry.
During such times, of course, it takes little news to knock the market off its horse -- and the news flow in the last few weeks has significantly raised global growth concerns. The worries have ranged from a pick-up in the velocity associated with the fall in oil prices -- which are now down 46% since June -- to deflationary impact and weakening demand in China, the eurozone and Japan.
As Versace has said more than a few times on TV and across the radio waves over the last few weeks, the fall in oil prices does not merely reflect a supply issue. It also points to weakening demand. We'll learn more about the demand side this week with the December flash purchasing managers index (PMI) reports from Markit Economics on Tuesday (see the Economic Calendar below). But the forecast cut from the International Energy Agency (IEA) certainly didn't help the market with this past week's finish.
Another sore point was the headline producer price index (PPI) for November, which reflected a 0.2% drop -- a result that by and large reflected the 3.1% slide in energy costs. We expect a similar effect in the consumer price index (CPI) report, which is due out later this week.
We continue to believe that slowing global growth, and the deflationary environment, will give the Federal Reserve more runway when it comes to raising interest rates on U.S. Treasury bonds. Against that backdrop, Hawkins will be breaking out her Dick Tracy decoder ring this week for the Federal Open Market Committee (FOMC) rate decision statement this Wednesday, as well as for Fed Chair Janet Yellen's question-and-answer session about the FOMC statement. The reality of today's world is that very little can move the markets quite as much as the words that grace the lips of central bankers.
While it may seem counterintuitive, we believe those factors will continue driving the U.S. equity markets higher in the short term, especially since the U.S. seems to be bucking the trend in global growth -- at least for now. We're keeping an eye out for more pronounced stimulative efforts in China, Japan and the eurozone, as well. If these take place, we believe those countries' stock markets will likely see similar moves to those of the S&P 500 after the Fed's post-financial-crisis stimulative efforts.
Of course, all of that hinges on whether the actual stimulus at least meets market expectations, but already the European Central Bank (ECB) is talking about revisiting its efforts in January. On Friday, China reported lower-than-expected industrial-production figures, and in our view this fans the speculative flames of another rate cut before too long. Versace has already started to nibble on the iShares FTSE/Xinhua China 25 Index ETF (FXI), and is eyeing entry points in the iShares S&P Europe 350 Index ETF (IEV).
While we've touched some on what's ahead this week, let's take a closer look at what you can expect. Several regional Fed economic indices are on tap, including the Empire State and Philadelphia Fed manufacturing indices. Also expected are earnings figures out of heavy-truck-and-engine maker Navistar (NAV).
Also on the docket are housing-starts data and the Housing Market Index from the National Association of Home Builders (NAHB). Consensus housing-starts expectations for November call for a modest bump up in the overall figure to 1.035 million, but to us it always comes down to the mix between single-family and multi-family housing. Commentary last week by Toll Brothers (TOL), which subsequently saw its ratings and price targets cut by Wall Street, did not offer an upbeat view on the industry. That was not surprising to us, given a 22% sequential drop in mortgage applications for new home purchases in November, per the Mortgage Bankers Association.
Needless to say, Hawkins remains steadfast in her view on the housing-market and related stocks.
Looking at the insights to be gathered from quarterly corporate results scheduled for this week, in focus will be food, consumer retail and some tech.
On the food front, ConAgra (CAG), General Mills (GIS), Darden Restaurants (DRI) and Sanderson Farms (SAFM) are all due to report. Despite the drop in oil prices, some commodity prices have actually been climbing, including for beef -- and Versace sees that as good news for Sanderson Farms shares.
Meanwhile, Nike (NKE) and Finish Line (FINL) are bound to benefit from the drop in gas prices, but it will be Nike's commentary on the eurozone and China that we'll be watching. CarMax's (KMX) take on auto traffic and demand will prove helpful to investors in Ford (F), General Motors (GM) and other auto-related plays.
At the same time, AAR (AIR) should help paint a picture as to how much more there is to go in the airline-stock rally, given the one-two punch of falling fuel prices and a crowded holiday travel schedule. Versace doesn't think lower fuel prices will pass through to airline tickets in the near term, and he also defers to the world-traveling Hawkins, who claims she's seen no decline in the prices of her frequent trips across the Atlantic.
Finally, Versace is quickly becoming addicted to Apple (AAPL) Pay, and he will be poring over VeriFone's (PAY) earnings release and subsequent conference call looking for mobile-payment take-up data. Hawkins, for her part, is waiting with great frustration for the launch of said service in Europe.
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.
Economic Calendar
| Monday, Dec. 15 | |
| Report/Event | Time Period |
| Empire Manufacturing | December |
| Industrial Production | November |
| Capacity Utilization | November |
| NAHB Housing Market Index | December |
| Net Long-Term TIC Flows | October |
| _____ | |
| Tuesday, Dec. 16 | |
| Report/Event | Time Period |
| Markit / JMMA Flash Japan Manufacturing PMI | December |
| HSBC Flash China Manufacturing PMI | December |
| Markit Flash France Composite PMI | December |
| Markit Flash Germany Composite PMI | December |
| Markit Flash Eurozone Composite PMI | December |
| Markit Flash US Manufacturing PMI | December |
| Housing Starts | November |
| Building Permits | November |
| _____ | |
| Wednesday Dec. 17 | |
| Report/Event | Time Period |
| MBA Mortgage Index | Weekly |
| CPI | November |
| Core CPI | November |
| Current Account Balance | Third Quarter |
| Crude Inventories | Weekly |
| FOMC Rate Decision | December |
| _____ | |
| Thursday, Dec. 18 | |
| Report/Event | Time Period |
| Initial JoblessClaims | Weekly |
| Continuing Jobless Claims | Weekly |
| Philadelphia Fed | December |
| Leading Indicators | November |
| Natural Gas Inventories | Weekly |
| _____ | |
| Friday, Dec. 19 | |
| Report/Event | |
| [No major economic releases scheduled.] | |
Earnings Calendar
| Monday, Dec. 15 | |
| Ticker | Company |
| CHRS | Charming Shoppes |
| PAY | Verifone Systems |
| _____ | |
| Tuesday, Dec. 16 | |
| Ticker | Company |
| DRI | Darden Restrnt |
| FCEL | Fuelcell Energy |
| FDS | Factset Resh |
| NAV | Navistar Intl |
| PLAY | Dave And Buster's Entertainment |
| _____ | |
| Wednesday, Dec. 17 | |
| Ticker | Company |
| FDX | FedEx Corp |
| GIS | General Mills |
| HEI | Heico Corp |
| JBL | Jabil Circuit |
| JOY | Joy Global Inc |
| ORCL | Oracle Corp |
| _____ | |
| Thursday, Dec. 18 | |
| Ticker | Company |
| ACN | Accenture Plc |
| AIR | AAR Corp |
| CAG | Conagra Foods |
| CTAS | Cintas Corp |
| LTRE | Learning Tree |
| LUB | Luby's Inc |
| MLHR | Herman Miller |
| NKE | Nike Inc |
| PIR | Pier 1 Imports |
| RAD | Rite Aid Corp |
| RHT | Red Hat Inc |
| SAFM | Sanderson Farms |
| SCHL | Scholastic Corp |
| WGO | Winnebago |
| _____ | |
| Friday, Dec. 19 | |
| Ticker | Company |
| BBRY | Blackberry Ltd |
| CCL | Carnival Corp |
| CUK | Carnival Plc |
| FINL | Finish Line |
| KMX | CarMax Group |
| PAYX | Paychex Inc |
