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  1. Home
  2. / Investing
  3. / Consumer Discretionary

The Week Ahead

It's quiet, but there are some data and earnings worth watching.
By CHRIS VERSACE AND LENORE HAWKINS Dec 21, 2014 | 05:00 PM EST
Stocks quotes in this article: SNE, RGC, CNK, CKEC, PANW, FEYE, IMPV, PFPT, LOCK, HTZ, CALM, WAG

You've no doubt noticed the large reversal in the stock market we experienced this week thanks to the soothing siren of Fed Chairperson Janet Yellen, whose song assured us interest rates would remain low well into 2015.

Not really a shock if you ask us, but given the slide in oil prices due to strong supply here and abroad, as well as what's shaping up to be a slower glo bal economy outside of the U.S., it seems Yellen gave Wall Street a tune to which it could really dance. While we wonder how much longer that track will play, it resulted in a sharp move higher, with all three major U.S. stock market indices closing the week up 2.4%-3.4%.

That move meant the S&P 500 enjoyed its second-best week of the year. And with only eight trading days left, the index is up 12% year to date.

We'll have to wait for the data to be released from both the NYSE and Nasdaq, but the oil-led pressure on the overall stock market during the Dec. 5-16 period likely led to more aggressive investors and hedge funds increasing their short positions to chase performance before the end of 2014. With the market in rally mode during the back half of last week, we suspect a portion of the upward move can be attributed to short-interest covering.

While we, of course, liked the rebound in the market, from a portfolio perspective, the Fed's comments seemed to solidify around an eventual rate increase in 2015. We hate to be party poopers, but it means we've not seen the last of what's likely to be wide swings in the market, particularly if efforts by the European Central Bank and China to revive their respective economies with monetary defibrillation paddles fall short.

We suspect you've heard the news on Sony (SNE) pulling "The Interview" in response to potential attacks. While we are less than thrilled with the kowtowing, we acknowledge the risk to innocents that may have attended a screening for that movie or another at a Regal (RGC), Cinemark (CNK) or Carmike (CKEC). No doubt a pickle of a situation for much-beleaguered Sony, but we do see it as further evidence that companies and individuals will spend more in 2015 on cyber security. That has us circling Palo Alto Networks (PANW), FireEye (FEYE), Imperva (IMPV), Proofpoint (PFPT) and LifeLock (LOCK).

If celebrities like Brad Pitt and Angelina Jolie think they have to hire a cybersecurity team to monitor their children online and Sony has to cancel a film to avoid the risk of further hacking, then we would say the outlook for cyber security stocks is rather vibrant.

Turning to the week ahead, brace for what will be a relatively slow week given the Christmas holiday. Trading volumes will be light, which will likely generate ho-hum (not ho-ho-ho) market activity, particular on Friday, the day after Christmas, with no economic nor earnings data getting unwrapped. Ahead of the holiday, we've got the usual weekly data coming, but it's the November figures for durable orders, as well as personal income and spending, that will make Tuesday morning probably the busiest of the week. In September and October, core capital goods (ex-defense, ex-aircraft) orders were both negative reflecting weak business investment. That bears watching this week, as does the November savings data to see if consumers are continuing to save more than they spend, a trend that has been in place for the last few months, with the saving rate hovering near 5%. As Versace shared over the weekend, retailers are already offering sizable enticements to shoppers this holiday season, not a good sign for their revenues and margins, and we have to wonder how steep discount will get after Christmas.

On the earnings front, this has to be one of the quietest weeks for corporate reporting, but even so, there are a few to watch. Among them are Hertz Global Holdings (HTZ), which should offer some insight on travel spending, as well as egg producer Cal-Maine Foods (CALM) and Walgreen's (WAG). Walgreen's will be the latest company to shed its NYSE ticker and head over to the Nasdaq, but investors will be more focused on the company's Alliance Boots acquisition and the coming management change as CEO Gregory Wasson retires once that deal closes.

We'll be using the relatively quiet time over the next two weeks to sharpen our views on 2015, and that means sifting through earnings expectations for the S&P 500, economic projections and prognostications for what we call the four economic horsemen: the US, China, Japan and the eurozone. It also means making some chess-like moves in our respective holdings, sacrificing a pawn or two to reposition on the investing board. Factoring into our thinking will be the impact of lower oil and gas prices, as well as the role of the stronger dollar relative to the euro and yen. As we do each week, we'll be sharing these thoughts with you right here and midweek in The Corner of Wall & Main.

From us to you and yours, Merry Christmas and Happy Holidays!

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At the time of publication, Versace's Thematic Growth Portfolio was long LOCK.

TAGS: Investing | U.S. Equity | Consumer Discretionary | Economic Data | Economy | Stocks

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