Stocks rebounded last week and finished on a high note on Friday. With little political news to rile markets, stocks reacted to the continued lack of inflation and signs that the economic slowdown seems to be reaching a bottom both here and abroad.
This week, the major event will be the FOMC meeting culminating in a press conference on Wednesday afternoon. Observers will be looking to see if Chairman Powell points to any sign that the runoff of the Fed’s balance sheet might come to an end this year. No one expects any real sign that interest rates will be raised or lowered any time soon.
Soon markets will start to focus on the outlook for first quarter earnings. It is generally expected that they will be lower, mostly a function of a very strong dollar. There could be some preannouncements of first quarter earnings disappointments but don’t expect too many. Companies have generally done a good job pulling in expectations over the past several weeks. One key report this week will come from FedEx#. Three months ago, FedEx reported a big disappointment, laying the blame on a significant contraction on trade activity around the world. As a result, future expectations for FedEx earnings were lowered considerably. The question this week is whether they should have been pulled in further. The last time FedEx reported in December, it helped to accelerate weakness in the worst month for stocks in years. Might it do so again? FedEx is one of those companies that can serve as a barometer for overall economic activity. If it disappoints in a big way, the echo impact elsewhere could be meaningful. Conversely, should it match or exceed lowered expectations, it could seed a further rally.
Away from FedEx, the news backdrop remains sparse. There are few earnings reports of note coming this week. The economic calendar is likewise light. Congress is also quiet. We expect little in the way of trade deal finalization. In short, the news front won’t be the instigator of stock price movements. Instead, technical factors should rule. Friday, markets broke through upside barriers but then pulled back. I would like to think bulls rule, but there isn’t much momentum. I expect that stocks should trade erratically sideways into earnings. Whether corporate results move the needle for future expectations up or down should lead market action for the next few weeks. While momentum leans in a positive direction, it’s still a jump ball. If the bulls are going to win, lagging groups like banks and industrials have got to improve. The jury is still out. Low interest rates help. But signs of improving economic activity are key. There have been some green shoots, but overall data doesn’t yet show signs of significant improvement in economic trends.
Today, Adam Levine is 40. Queen Latifah is 49. Vanessa Williams turns 56.
James M. Meyer, CFA 610-260-2220