Market Perspective for April 4, 2016

All major indexes lost some of last week’s momentum, closing slightly lower on Monday following a 3-percent drop in oil.

The minutes of the Federal Open Market Committee meeting held in March will be the week’s most notable release and are likely to confirm the sentiment expressed by Fed Chair Yellen in public comments last week regarding concerns over China and oil. Fed officials adjusted their individual forecast for rate hikes at the March meeting; the vast majority of officials expect a maximum of two rate hikes in 2016. The Dow and S&P 500 indexes are within approximately 3 percent of their 52-week highs. The markets should remain strong as fiscal and monetary policies remain accommodative and economic news continues to support the bullish sentiment.

The Labor Market Conditions Index (LMCI) released by the Fed on Monday was subdued, proving positive for investors looking to hold off on rate hikes. The index was negative 2.1 in March, an improvement from negative 2.4 in February. The most apt comparison for now, assuming the numbers don’t rebound and given other data pointing to expansion, is the 2002-2003 period, when employment lagged the economic recovery. The Fed didn’t begin raising interest rates until 2004, after the Labor Market Conditions Index was well into positive territory. This is the best scenario for stocks, an economic expansion with enough doubt to keep the Fed from hiking too fast.

The Trade Balance report and the Jobs Opening and Labor Turnover Survey (JOLTS) will be reported on Tuesday. Economists forecast the trade increased to $46.2 billion from the previous month’s $45.7 billion. The JOLTS is expected to show an increase in job openings, which reinforces the perception of a strengthening labor market and would counteract the LMCI figure. The March ISM Service Index will also be released on Tuesday. Consensus estimates anticipate 57.7, which would indicate continued expansion. On Thursday, the latest weekly unemployment claims and a report on consumer credit, which is expected to have increased by $14 billion in February, will be available. Unemployment claims are expected to be slightly lower than last week.

The big kick-off to earnings season is next week, but a few widely-held companies report this week. On Tuesday, Walgreens (WBA) is expected to report its second-quarter fiscal results. Analysts are calling for earnings per share of $1.28 on revenues of $30.66 billion. While the company beat earnings estimates last quarter, revenue was below consensus. Bed Bath and Beyond’s (BBBY) fiscal fourth-quarter results will be out on Wednesday. Analysts are looking for earnings per share of $1.81 and top line revenues of $3.38 billion. Rite Aid (RAD) will report on Thursday. Walgreens is set to take over the firm in the second half of 2016. Estimates are for EPS of $0.06 with revenues of $8.4 billion. The state of the used car market will take center stage on Thursday when CarMax (KMX) reports its quarterly results. Consensus estimates call for EPS of $0.71 and revenues of $3.68 billion.

The oil market will continue to heavily influence global markets in an otherwise quiet week. Oil traders may hold off on major moves until the OPEC meeting on April 16th. With equities rising on their own momentum, a quiet oil market this week would be beneficial.

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