Market Perspective for April 14, 2014

Investors can look forward to a holiday shortened week: U.S. stock markets are closed for Good Friday. European markets will also be closed Friday, plus Monday as well.

Having the markets closed for a few days will be welcomed by the bulls, especially if the bears keep the selling pressure up. The stock market is teetering on the edge of a bigger sell-off with the NASDAQ and Russell 2000 indexes headed towards major support levels. A bounce is possible for a day or two, but if a sustained rally doesn’t occur, the support levels will most likely be tested.

Coming into the week, utilities, consumer staples and energy are trying to pull the market up, although even utilities started faltering late last week. West Texas Intermediate crude oil prices climbed above $104 in early trading Monday, setting up a test of the recent high at $105. A break above that level would be very bullish for the commodity and energy equities, particularly the more volatile exploration firms. The big question outstanding is whether the move in oil is political or economic in nature. Russia has replaced Saudi Arabia as the largest oil producer and tensions in Ukraine are on the rise again.

One argument in favor of the economy pulling prices higher is that West Texas crude is consumed in the U.S. Lately, it has been rising in price faster than Brent North Sea crude oil. Also, natural gas prices are rising as well and those supplies are consumed domestically. This will also be an important week for earnings. Internationally, money supply and GDP growth figures from China will be closely watched. Earnings estimates have been coming down as of late, which sets up the opportunity for companies to beat expectations if they had solid quarters. In previous earnings seasons, when reporting was expected to be weak, firms that missed were punished harshly.  On the other hand, those firms that beat the lower expectations saw their shares jump.  We expect the same reaction to again occur over the coming days.

Economic Reports: March inflation numbers and retail sales are out this week, along with March housing starts. Janet Yellen is giving a speech on Wednesday that will no doubt generate a lot of discussion. China’s money supply and GDP figures are highly anticipated. The GDP figure is expected to be 7.3 percent growth in Q1. Even a small miss higher or lower could lead to volatility in the market if the money supply corroborates the data.

Earnings: Citigroup (C), Charles Schwab (SCHW), Intel (INTC), Yahoo (YHOO), Coca-Cola    (KO), General Electric (GE), IBM (IBM), Google (GOOG), Johnson & Johnson (JNJ), American Express (AXP), Abbott Labs (ABT), Bank of America (BAC), Philip Morris International (PM), Pepsi (PEP), Goldman Sachs (GS) and Chipotle Mexican Grill (CMG) headline a big week for earnings.

The financials will be critical to the broader market this week. IBM is one to watch; shares have rallied, but questions remain about the impact of the NSA spying scandal. It along with Google will have a large impact on technology funds.

CMG is also a stock to keep an eye on. It is off about 14 percent from its high in mid-March. One stock doesn’t make a market, but this is a big momentum name and how it reacts to earnings will tell us something about market sentiment. CMG could be a big loser this week if it misses its earnings estimates or guides lower. Analysts are looking for earnings of $2.85 per share in the quarter and revenue of $873 million.

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