Market Perspective for August 18, 2014

It looks to be a calm week for the markets, with little in the way of economic data coming out and earnings season tapering off. The minutes from the prior Fed meeting will be released on Wednesday. Inflation data for July will be out on Tuesday, while on Thursday there is the flash manufacturing PMI for August. U.S. manufacturing has been strong, so the flash PMI is unlikely to have a significant impact, even if it slips. The Chinese flash PMI will also be out though, which will draw some attention. Last month the manufacturing PMI for China was surprisingly strong, but power consumption numbers out on Friday showed that industrial demand for power slowed markedly in July. Investors will be looking for some clarity on which number is showing the future trend in growth.

Stocks have been in an uptrend in August and the Nasdaq is close to hitting a new high for the year; a gain of approximately 0.5 percent will push it into record territory for 2014. In the absence of any news, sentiment is likely to carry the market. Short-term technical indicators support a bullish outlook at the start of the week. Asian and European markets confirmed the outlook with gains in Monday trading. Assuming nothing breaks the trend, stocks should finish the week higher than they started.

The wild card for the week is the Federal Reserve’s Jackson Hole conference. Federal Reserve Chairman Janet Yellen and European Central Bank (ECB) President Mario Draghi will both speak at the event. No surprises are expected, but former Fed Chairman Bernanke did pre-announce the second quantitative easing policy in 2010 at the Jackson Hole summit. There are questions about whether the ECB will increase its policy intervention, while any comments on the exit from quantitative easing or future rate hikes by Yellen could move markets.

Earnings: This week is dominated by retail earnings reports. Home Depot (HD), Target (TGT), Staples (SPLS), American Eagle Outfitters (AEO), Sears (SHLD), TJX Companies (TJX), Dollar Tree (DLTR), Gap (GPS), Petsmart (PETM), Lowe’s (LOW), and Aeropostale (ARO) are some of the firms reporting. Hewlett-Packard (HPQ), Broadcom (BRCM), Medtronic (MDT), (CRM), JA Solar (JASO) and Trina Solar (TSL) also report this week.

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