Market Perspective for February 23, 2015

With earnings season mostly in the rear view mirror, investors will focus on macroeconomic conditions this week. On Friday, the Bureau of Economic Analysis will release the second estimate of fourth quarter GDP. The number is expected to be 2.1 percent, down from the initial 2.6 percent estimate due to stronger than expected exports and weaker than forecasted inventory growth.

More important for the market is a slew of January data that will tells us how the first quarter of 2015 is going. Durable goods orders and capital goods orders for January are both out this week, as is the January consumer price index. The consensus is expecting a 0.6 percent drop in inflation year on year, but a lower number is likely. The Billion Price Project (BPP) at MIT shows inflation fell more than 1 percent year on year during January. The BPP is a real-time look at prices and tends to be a very good predictor of government numbers. Later in the week, the flash PMI for China will be out. Oil, copper and other commodities have been weak, likely due to a sudden drop in Chinese demand as factories close their doors and real estate investment starts to contract.

Oil prices opened lower on Monday, with West Texas Intermediate Crude down about $2 and again below $50 a barrel. Inventories have been growing rapidly, signaling demand for oil has slowed in recent weeks. It’s unclear as of yet where the slowdown is coming from, but with inventories at record highs in the U.S. and oil production still rising, the price of oil in the futures markets is starting to slowly drop. Look for oil to trade in a tight range this week, with a bias toward the downside.

Assuming no surprises emerge, it appears Greece and its creditors have come to an agreement. Later today, a list of reforms will be submitted by Greece and if accepted, the deal will go forward. Equity investors seem optimistic, but currency traders sent the euro lower in early trading. The euro should bounce after tumbling from $1.24 to $1.11 from December into January, and a failure to bounce would signal that this bear market is a major one. The flip side of a euro bear market is a U.S. dollar bull market.

Earnings are light this week, though there are a few big names reporting. Petrobras (PBR), the Brazilian oil giant reports. The company comprises about 20 percent of iShares MSCI Brazil (EWZ) and will have a significant impact on the ETF’s performance. The firm has been hit by a corruption scandal and plunging oil prices, weighing on the ETF. Home Depot (HD) and Lowe’s (LOW), both components in homebuilder ETFs, report as well. SunPower (SPWR) and First Solar (FSLR) will be interesting to watch as the solar sector has been outperforming over the past month. Other companies scheduled to announce earnings include Chesapeake Energy (CHK), Hewlett-Packard (HPQ), Target (TGT), J.C. Penney (JCP) and 3D Systems (DDD).

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