Market Perspective for April 11, 2016

In addition to the start of a new earnings season, numerous economic reports are due out. Today’s unexpected closed-door Fed meeting could also influence this week’s trading.

The major indices entered the week in a consolidation phase, a natural occurrence in the wake of the recent sharp rally. Crude oil surged from the mid-$20s to $40 a barrel. The S&P 500 Index rallied 13 percent from its February 11 closing low and has spent the past three week moving sideways as investors adjust their portfolios, taking profits in sectors such as energy, and buying sectors such as healthcare.

Federal Reserve Chair Janet Yellen will meet with President Obama today following a special Fed meeting under “expedited procedures.” The last time the Fed called a special meeting, it was to raise the discount rate in November 2015, ahead of hiking the Fed funds rate in December. Assuming the Fed doesn’t make significant news, investors will quickly turn their attention to earnings season.

Analysts expect S&P 500 earnings to decline 9.1 percent, driven by falling energy earnings. Pessimism has been the rule heading into earnings season, however, and the past several years have beaten low-ball predictions. The first group of firms to report this week are the behemoth banks: JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C).

On Wednesday, JPM is expected to report earnings per share of $1.26 on revenues of $23.44 billion. Consensus estimates for BAC’s Tuesday report call for earnings per share of $0.22 and revenues of $21.42 billion. Wells Fargo (WFC) will release its quarterly earnings on Thursday. The firm is expected to report earnings of $0.98 per share on top line revenues of $21.62 billion. Citigroup (C) is set to release its earnings report Friday, with estimates of earnings per share of $1.09 and revenues of $17.62 billion. The company is heavily weighted in the industrial and transportation sectors, which rebounded strongly in the first quarter.

Analysts forecast CSX Corp (CSX) will report earnings per share of $0.37 and $2.68 billion in sales. Delta Air Lines (DAL) is expected to report earnings per share of $1.30 and revenue of $9.26 billion. Analysts are looking for Fastenal (FAST) to deliver earnings per share of $0.45 and $989 million in sales.

Alcoa (AA) is scheduled to report after the closing bell on Monday. The firm is expected to report earnings per share of $0.03 on $5.13 billion in revenue. Alcoa is in the eye of the China slowdown storm and has struggled with its own restructuring and low aluminum prices which did not rebound as much as oil and copper.

China’s consumer price index (CPI) dipped in March, while producer prices rebounded with rising oil prices. Later this week, the country will report March imports and exports, retail sales and fixed asset investment. Although not scheduled, new loans and money supply are also likely to be released. This data heavy week in China could impact industrial commodities, such as copper, and given the concern over the Chinese yuan, it may also impact regional currencies like the Korean won.

The Federal Reserve Beige Book, a collection of economic indicators from regional Fed banks, will be released Wednesday. In addition to weekly unemployment claims, the latest consumer price Index from the Bureau of Labor Statistics will be released on Thursday. The BLS figure has been running hotter than the Fed’s preferred core PCE number. Month-on-month core inflation of 0.2 percent is expected. Retail sales for March and business inventories will be out on Wednesday. Friday’s industrial production and capacity utilization numbers could impact first quarter GDP estimates.

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