Market Perspective for January 11, 2016

Stocks look set to bounce back after suffering their worst start to a year in history. Last week’s focus on China’s losses may be waning as both European and American investors concentrate on strong domestic data. Shares rallied in Europe and into the U.S. open and a continued surge may signal a much-needed perspective shift.

On the bright side, Monday kicks off a new earnings season. Earnings have surpassed expectations in recent quarters. Telecom, financials, consumer discretionary and healthcare stocks are all expected to report solid gains. The slump in energy has led analysts to predict a 67 percent decline for the sector and a subsequent 5.3 percent drop in S&P 500 earnings.

Alcoa (AA) will be the first major company to report earnings after the bell on Monday and is expected to announce earnings per share (EPS) of $0.04 on revenues of $5.34 billion. The company’s earnings report may provide insight into the current state of the commodity sector. Aluminum and copper prices have tumbled under weak Chinese demand. China’s decreased demand for coal has also taken a major toll on the sector.  Arch Coal (ACI), the second-largest coal reserve in the U.S. filed for Chapter 11 on Monday in an attempt to staunch a growing $4.5 billion debt.

All eyes will be on JPMorgan (JPM), Citigroup (C) and Wells Fargo (WFC) when they report earnings at the end of the week. Analysts expect EPS of $1.30 on slightly more than $23.0 billion in revenue for JPM.  WFC is expected to report $1.03 earnings per share and top line revenue of $21.8 billion and Citi is predicted to announce EPS of $1.14 and $17.9 billion in revenue. Intel (INTC) will also report this week and is expected to report $0.63 per share in earnings and $14.8 billion in revenue. Heightened scrutiny will accompany this first post-rate hike earnings and will set the tone for the next several market weeks.

Several key reports will highlight the state of the overall economy. Federal Reserve Beige Book, a collection of economic indicators, will be released on Wednesday, while the December Producer Price Index, expected to show a decrease of 0.2 percent and December retail sales, expected to rise 0.2 percent, ex-autos will be available on Friday. The initial consumer sentiment index and the Empire State Manufacturing Survey for January will also be released on Friday. Chinese trade data, scheduled for a Tuesday night release, will provide critical data for overseas markets. Analysts forecast an 8 percent year-over-year drop in exports, and an 11.5 percent drop in imports.

On Monday, the People’s Bank of China guided the yuan higher in an effort to reinforce currency markets. On Friday, European Central Bank governing member Philip Lane committed to additional quantitative easing if necessary. Several Federal Reserve officials are scheduled to speak publicly this week, including a Tuesday panel discussion with Vice-Chairman Stanley Fischer, whose remarks will be closely examined for the Fed’s current mood and the timing of the next rate hike.

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