- Stocks near flat, oil strength fades. U.S. equities are clinging to gains this morning despite a slide in WTI crude crude oil prices from overnight highs. This morning’s action comes after indexes rebounded from initial losses to finish higher on Friday as traders digested the closely watched jobs report. Initial declines following a miss on the headline payroll figure gave way to optimism that the Federal Reserve Bank (Fed) may further temper rate hike expectations; investors will look to several Fed speakers today for more clarity. Overseas, Asian markets were mixed with Japan’s Nikkei rising 0.7%, snapping a six-session losing streak, while China’s Shanghai Composite tumbled 2.8% after trade data showed an unexpected drop in exports, sparking growth concerns. European indexes, meanwhile, are mostly higher in afternoon trading. Elsewhere, the dollar is gaining ground, COMEX gold is down sharply, and Treasuries are modestly higher.
- Peak earnings weeks are behind us. With 87% of S&P 500 companies now having reported, earnings season shifts into slow gear this week with just 19 companies reporting. Thomson-tracked first quarter 2016 earnings growth is tracking to a 5.1% decline, more than 2% ahead of estimates when earnings season began. Excluding energy, earnings are tracking to gains of about 1%.
- Estimates holding up well. Forward S&P 500 earnings estimates, down 1.4% since April 1, fell only marginally last week as over 120 companies reported results. The weaker U.S. dollar and commodity stability are helping, while it is encouraging that sub-par economic growth has generally had little impact on companies’ near-term outlooks, which have largely factored it in.
- China data are key this week. China began reporting its April data over the weekend (see below), and by the of the week will have reported almost all of its key reports for April (retail sales, Consumer Price Index [CPI], exports, money supply, and new loan growth). In the U.S., April retail sales, the March Job Openings and Labor Turnover Survey (JOLTS) data, along with a half dozen or so Fed speakers are on deck. The Bank of England meeting is the key central bank meeting this week.
- China began a week of data dumping with trade and currency reserve data. Exports fell -1.1%, while imports fell -10.9%; both figures were well below consensus forecasts. Changes in the value of the yuan resulted in an increase in Chinese foreign currency reserves. Once the currency impacts are factored out, it appears that selling by the central bank has slowed from over $20 billion per month to around $4 billion. This is the first round of what will be a full week of data; thus far, the data reflect overall weakness in the global economy.
- Bounce off the 50-day moving average. The S&P 500 lost 0.4% last week for its second straight negative week. It hasn’t declined three consecutive weeks since the start of the year. Energy and materials lagged, while utilities and consumer staples led. Technically, the S&P 500 found support right at its 50-day moving average on Friday. This trend line could provide near-term support.
- Crude in the news again. Crude oil is at the forefront again this morning, as it is up slightly on news of the dismissal of Saudi Arabia’s energy minister. This could potentially open the door to a pullback of its strategy of maintaining high production. Also, wildfires in Canada have disrupted oil output from the energy-rich country. Crude oil is now more than 70% off of its February lows and up 20% for the year. Today on the LPL Research blog, we will take a closer look at where this move off the yearly lows ranks in history.
- Yet another disconnect. This week’s Weekly Economic Commentary, due out later today, explores the disconnect between the Fed and financial markets on job growth. Job growth is likely to slow in the next 12 months from the average 200,000 per month pace seen over the past six years. While the market might view that as a sign of an impending recession and more Fed stimulus, the Fed views job growth as slow as 120,000 per month as tightening the labor market.
- Initial thoughts on election market impact. In this week’s Weekly Market Commentary, due out later today, we look at what the upcoming presidential election may mean for markets in 2016. Markets do not like uncertainty, and Donald Trump certainly brings that. Although stocks may be more volatile between now and November as market participants size up Trump and assess his chances against presumptive democratic nominee Hillary Clinton, we believe the typical election year stock market pattern, our assessment of the more likely potential outcomes in November, and the macroeconomic backdrop all still suggest modest gains for stocks in 2016.
- China: New Loan Growth and Money Supply (Apr)
- JOLTS (Mar)
- Mester (Hawk)
- Rosengren (Dove)
- George (Hawk)
- Norway: GDP (Q1)
- UK: Bank of England Meeting (No Change Expected)
- Retail Sales
- Consumer Sentiment and Inflation Expectations (H1 May)
- Eurozone: GDP (Q1 – Revised)
- Malaysia: GDP (Q1)
- China: Industrial Production (Apr)
- China: Retail Sales