Market Perspective for July 20, 2015

The coming days are likely to be dominated by earnings reports, though next week’s Federal Reserve meeting is already looming large after Federal Reserve Bank of St. Louis President James Bullard said a September interest rate increase was a 50/50 proposition. The meeting is important for a September rate hike because the Federal Reserve is widely expected to signal any changes at least one meeting in advance.

Earnings reports will be abundant, with a long list of blue chip companies ranging from Apple (AAPL) to Verizon (VZ) set to announce results. Abbot Labs (ABT), Celgene (CELG), Biogen (BIIB), Abbvie (ABBV) and Eli Lilly (LLY) headline the healthcare sector. Along with Apple, IBM, Microsoft (MSFT), Qualcomm (QCOM) and Amazon (AMZN) report. Comcast (CMCSA) and AT&T (T) from telecom, Boeing (BA) and Caterpillar (CAT) from industrials, Coca-Cola (KO) and McDonald’s (MCD) from the consumer sectors, plus Visa (V) and American Express (AXP) from the financial sector are other significant companies that report. Last week earnings, mostly technology and financials, were very strong and exceeded expectations.

Greek banks opened on Monday to long lines as withdrawal limits are still in place. Greek consumers need more cash because the VAT tax on many items went from 13 percent to 23 percent, about a 9 percent rise in prices since last week. Additionally, the first round of aid was delivered to Greece and it immediately went to repay the very creditors who provided the money.

The most important assets to watch over the coming days may be currencies and commodities. Last week, the Canadian dollar fell to new lows versus the U.S. dollar. Today, the Mexican peso broke to a new all-time low, exceeding the previous low set in 2008. The U.S. Dollar Index was steady on Monday but recent weakness in the euro has been pushing the greenback towards its March high.

Commodity prices are tumbling, with industrial metals such as platinum under increasing pressure. The metal is down nearly 20 percent this year and prices collapsed overnight before rebounding. Gold is also falling after there was rumored forced selling in China, when 5 tons hit the Shanghai physical gold exchange. This could be a sign that China’s credit bubble is bursting and investors are forced into selling liquid assets. West Texas Intermediate Crude oil will battle to hold the $50 level this week; it was trading as low as $50.25 in Monday morning trading.

Weakness in commodities has been weighing on the energy stocks. SPDR Energy (XLE) is again testing its lows for the year. Natural gas stocks are tumbling, with First Trust ISE Revere Natural Gas (FCG) down about 20 percent in July, even though gas prices have ticked higher in July. Due to the sharp nature of the declines across many commodities, we could see a bottom forming.

The broader stock market is likely to see limited gains this week. Earnings should provide some support but gains may be limited if commodities don’t rebound.

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