(Monday Market Open) Fed week is upon us once again, and it starts with the S&P 500 Index (SPX) near its highest level in months and Treasury yields near their lowest. Though there’s little drama around the Fed’s meeting Tuesday and Wednesday, it’s probably going to be closely watched in what appears to be a slow news cycle.
The new week also begins with Boeing (NYSE:BA) shares under more pressure following reports over the weekend that the U.S. government might investigate the Federal Aviation Administration’s (FAA) approval of Boeing’s 737 Max planes. Boeing shares fell 2% in pre-market trading.
If BA shares keep sliding today, that could set up a dichotomy like the one we saw last week in which the Dow Jones Industrial Average ($DJI)—where BA is a prominent member—moves out of sync with the SPX. That’s how things looked in the early going, with the DJI falling in pre-market trading and the SPX up. That came after a jump in Asian stocks earlier Monday as optimism continued about possible progress in U.S./China trade negotiations.
Though the Fed might be one focus this week and BA another, make no mistake: The China tariff situation is likely to remain top of mind for the market until there’s some kind of resolution.
On the commodities front, crude futures were initially a little lower early Monday before ticking up slightly after news that OPEC would cancel its April meeting. According to the organization, the meeting is being canceled because it expects the oil market to remain oversupplied through the first half of the year, CNBC reported early Monday. OPEC also apparently wants more time to assess the impact of U.S. sanctions on Iran and Venezuela.
This just happened, but one possible ramification is that any hopes for OPEC to turn up the spigots next month might have just gotten dashed.
Earnings Could Be Back in Focus This Week
This week is relatively light on major data, but the few earnings reports on the calendar are from companies that often are seen as barometers of general economic and industry health.
For instance, FedEx (NYSE:FDX) is scheduled to deliver earnings after the close Tuesday. The courier company is often viewed as a checkup on the global economy. After all, if consumers are buying things, they often order them online and have them delivered via courier.
Also, Nike (NYSE:NKE) is teed up to report earnings later this week. More about Nike as a possible bellwether for the health of the consumer below.
Micron Technology (NASDAQ:MU), which also reports later this week, could offer investors another look into a semiconductor industry that right now seems to be fighting with what some analysts say appears to be an oversupply situation in the chip market. However, that hasn’t really stood in the way of a rally in the sector so far this year.
On the data side of things, investors may want to tune in for the release of factory orders, leading indicators and existing home sales. January factory orders are expected to show a 0.2% rise, while the February leading indicators index is expected to rise 0.2%, and existing home sales for February to show a seasonally adjusted annual rate of 5.1 million, according to Briefing.com consensus estimates.
Fed Steps To Plate, But Drama Lacking
A dovish central bank has helped boost the stock market this year, and there seems to be little indicating that policy makers would deviate from their stated policy of being “patient.”
As we noted last week, however, one thing to consider watching for is any new insight into the Fed’s balance sheet plans. Late last month, St. Louis Fed President James Bullard told CNBC he believes the Fed’s bond holdings reduction program is “near an end.” Halting the balance sheet reduction would potentially be one way for the Fed to try to give the economy a lift without taking the more dramatic step of lowering rates.
We’ll also see if Fed Chair Powell delivers investors any more insight into his views on the global economy and the state of U.S. economic growth. Economists widely expect tepid Q1 growth, so one question Powell might be asked is whether he sees gross domestic product (GDP) bouncing back later this year.
The “dot plots” from Fed officials mapping out where they see rates going in the future also get updated at this meeting, perhaps providing investors a chance to look into the Fed’s longer-term thinking.
China Optimism Gave Market Mid-March Boost
On Friday, U.S. stocks ended in the green after China’s state media reported progress on a potential trade deal between the Asian nation and the United States. That seemed to help assuage some worries from earlier in the week on concerns about when the two countries’ presidents might meet.
A Chinese government plan designed to stimulate growth by cutting taxes also seemed to boost sentiment, since the economy there has been slowing lately, with more soft numbers out last week.
With the positive economic news out of China, chipmakers, which tend to derive a good portion of their revenue in relation to China, had a strong day Friday, and the Information Technology sector was handily the day’s biggest gainer among the S&P 500’s (SPX) 11 sectors. The SPX hit a five-month intraday high on Friday and begins the new week up 12.6% so far this year. The Russell 2000 (RUT) index of small-caps is doing even better, up 15% year-to-date, and the NASDAQ Composite (COMP) is up nearly 16%.
At the same time, U.S. Treasury yields show no sign of any alarming climbs like the one last summer and fall. The 10-year yield ended last week below 2.6%, down at the lowest levels since January. Weak overseas economic growth and a dovish Fed probably help account for that.
With stocks ending last week on a strong note as jitters about international trade took a back seat and left the risk-on trade behind the wheel, it perhaps wasn’t surprising to see the CBOE Volatility Index (VIX) slip. (See below.)
Wall Street’s main fear gauge dipped under 13 on Friday for the first time since early October, especially because it’s fallen from above 36 late last year. Back then there was broad hand wringing about the potential for an overly hawkish Fed and worries about the U.S. and China resolving a trade deal.
Easing Tensions: Wall Street’s main fear gauge dipped below 13 on Friday. That’s well below where the VIX has historically traded and comes at a time of rising optimism about a U.S.-China trade deal even as the Fed now seems much less hawkish than feared late last year. Data Source: Cboe. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Pulse of the Consumer: Last week was bookended by good news about the American consumer. On Monday, data showed an unexpected jump in January retail sales – rising 0.2% when a 0.1% drop had been expected in a Briefing.com consensus. And the end of the week brought news that the preliminary University of Michigan consumer sentiment index for March came in stronger than expected—at 97.8 when a consensus expectation of Wall Street analysts had pegged the figure at 94.9. “The key takeaway from the report is that real income expectations, which account for inflation, increased in households across lower, middle, and upper incomes,” Briefing.com said. “That favorable outlook is supportive for consumer spending activity.”
Putting on the Sneakers: This week, investors are expecting another look at how well the consumer is doing. This time, it will be in the form of Nike (NKE) earnings. The athletic apparel and shoe maker has come to be considered by some analysts as a bellwether on the heath of the consumer because its products aren’t staples like toothpaste, which consumers need to buy regardless of how the economy is doing. When consumers have more money or anticipate having more money, that’s when they might tend to go out and buy workout clothes or running shoes, which are more discretionary than consumer staples purchases. After last week—which saw some good news on the consumer economic news front, as well as strong performance Friday by consumer discretionary company Ulta Beauty (NASDAQ:ULTA), which beat expectations on its top and bottom lines—we’ll have to see whether NKE continues the trend.
Fed Watch: Even when the Fed isn’t expected to make a change in interest rates, it can still be useful to parse through the language in press releases and press conferences—even those accompanying decisions to stand pat on rates. It seems likely investors will be doing just that later this week. A Briefing.com consensus estimate shows expectations for the central bank to leave its key short-term rate unchanged at the conclusion of its two day policy meeting. As you may recall, the last meeting resulted in the Fed holding interest rates steady following a hike back in December. There doesn’t seem to be too much to suggest that the Fed would deviate from its pause on rate hikes, a sentiment that has arguably been one factor helping stocks rally this year.
Disclaimer: Charts For illustrative purposes only. Past performance does not guarantee future results.TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.