The S&P sold off a little late last week. If you are looking for a reason, it’s called profit taking at S&P 2100.00, Dow 18,000 and Nasdaq 4550.00. Last week had a low level of economic reports and a high level of earnings. The week ahead is not at all like last week. There are a total 21 economic reports, 11 T-bill or T-bond auctions or announcements, the Federal Reserve’s two day meeting and interest rate decision, GDP, housing numbers, International Trade and the busiest earnings week of the season, with 186 companies in the S&P reporting, and Dallas Federal Reserve Bank President Rob Kaplan speech to monetary policy forum, in London. The last week of April is statistically up a day-down a day, and the first trading day of May has been up 13 out of the last 18 occasions.
After making the 1805 February 11th retest, the S&P futures have rallied 300 points (handles), and is now bouncing off the ‘big figure’ at 2100.00. While the indices look like the are ready to start a pull back, the Nasdaq futures have closed down 5 out of the last 7 sessions, but the S&P (ESM16:CME) has closed higher 5 out of the last 7 occasions. This week should be a testing ground for the equity markets, with nearly 700 names reporting this week, the Federal Reserve’s two day meeting (Tuesday and Wednesday), the BOJ (Thursday), US GDP, oil inventory numbers (up 5% last week) set to be released this week could mean an uptick in volatility. Big names like Apple, Exxon Mobil and Facebook will be reporting earnings.
According to the CME’s Fed Funds Rate futures, the possibilities of an April hike are a slim 2.5%, which the futures don’t show a probability until November. However, given the recent speak from several of the Fed’s members, their position anticipates at least two rate hikes this year. Of significant importance this week will be the position statements from the Fed and whether some of the dovish language used by Yellen in recent weeks will be reflected in this statement. Many of the major banks, including Goldman Sachs, still see a probability of multiple rate hikes this year, and the language from this week’s meeting will give ample evidence of whether a mid year hike may be on the table or not.
The next major U.S. event will be the release of the GDP (gross-domestic product) report on Thursday. Many of the forecast have been strongly modified lower including the projection from the Atlanta Fed which suggested a mere 0.3% print for first quarter of this year. Q1 earnings have also been a drag on economic indicators, even if they have not led to a heavy risk off environment in the equity markets. Earnings for the S&P 500 stocks are projected to be down over 7% from Q1 last year. While the majority of reporters thus far have beaten the final estimates, many of these projections had already been lowered more than once to pessimistic levels. Many eyes will be on Apple Inc (AAPL) this week, which according to FactSet, “Apple Projected to Be Largest Contributor to Earnings Decline for S&P 500 Technology Sector”. FactSet also noted concern surrounding energy earnings noting that “Of the 39 companies in the S&P 500 Energy sector, 22 have reported or are expected to report a loss in EPS for the quarter (including Chevron). If the Energy sector reports an aggregate loss for Q1 2016, it will mark the first time any sector in the S&P 500 has reported an aggregate loss since Q4 2008. In Q4 2008, the Financials sector reported an aggregate loss of -$59.0 billion for the quarter”.
In spite of all the negativity surrounding earnings and economic reports, the S&P 500 made a new high for the year only about 1.5% from last May’s high. While some weakness showed up late in the week that has carried through overnight, this was to be expected on the first touch of 2100, a major technical and psychological number for the benchmark index. Dip buyers have been controlling the tape for 10+ weeks and it’s going to require more from bears than a 20-30 handle pullback to change this. We are watching the 2070 level early this week and below that 2050 comes into play. The 2050 price has been the pivotal one since mid March and if dip buyers are going to continue to have their way, they will hold this line as support. Otherwise we see 2020 as a target in the days to come.
In Asia, 8 out of 9 open markets closed lower (Shanghai Comp -0.42%), and In Europe, 12 out of 12 markets are trading lower this morning (DAX -0.51%). This week’s economic calendar features the two day FOMC meeting and 26 reports, 11 treasury events and one Fed speaker. Today’s economic calendar includes the New Home Sales, Dallas Fed Mfg Survey, 4-Week Bill Announcement, 3-Month Bill Auction, 6-Month Bill Auction, and a 2-Yr Note Auction.
Our View: If feels like the ‘summer markets’ are already here but this week is packed with all sorts of economic reports, central bank meetings and a slew of earnings reports. That said traders may cut back until Wednesday’s interest rate announcement. While the economy has stabilized over the last few months, it’s highly unlikely the fed will raise interest rates in this meeting, which could mean another push higher for the S&P futures. Our view, the ESM16 has a lot to digest in the coming days, sell the early rallies and buy weakness or just let the ES pull back and buy weakness. As long as CL is firm and the volumes low the ES probably will not go down that much.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 9 open markets closed lower: Shanghai Comp -0.42%, Hang Seng -0.76%, Nikkei -0.76%
- In Europe 12 out of 12 markets are trading lower: CAC -0.34%, DAX -0.47%, FTSE -0.61% at 6:30am CT
- Fair Value: S&P -5.95, NASDAQ -7.82, Dow -77.87
- Total Volume: 1.5 mil ESM and 8.6k SPM traded
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