Mixing It Up: Markets Await Host Of Economic Data, Key Earnings, And Fed Meeting

What would you call a week that features a Fed meeting, a hefty batch of earnings, and a monthly jobs report? Well, you could call it one of the busiest weeks of the quarter, and that’s what’s coming up.

Heading into the Fed meeting, the futures market has priced in virtually no chance of a rate hike just a month and a half after the last one. Even so, there will be a statement to ponder after the meeting ends Wednesday afternoon, and that could give investors an updated sense of where Fed leaders see the economy heading.

Keep in mind, too, what Fed Chair Janet Yellen said earlier this month about rate hikes “a few times a year” through 2019. That doesn’t necessarily mean right away, but interest rates climbed above 2.5% on the 10-year Treasury note at times last week, and some analysts think 3% yields aren’t out of the question at some point. However, the government’s somewhat tepid 1.9% gross domestic product (GDP) estimate for Q4 released Friday hinted that economic growth may not be as strong as once thought. The number was below the 2.2% average estimate and well below Q3 levels.

As of Friday, Fed funds futures priced in just a 4% chance of a rate hike this week, rising to about 25% at the Fed’s March meeting. The May meeting looks like a better candidate for the next rate hike, with chances now above 40%, according to the futures market.

So with the Fed meeting possibly less exciting than usual, that leaves investors to track another huge week of earnings. It may seem like earnings just began, but by the end of this week, 60% of S&P 500 companies will have reported. Early indications have been mostly positive, and lots of optimism is evident from CEOs on earnings conference calls, always a helpful indicator of where things are going.

The biggies early this week include Eli Lilly LLY, ExxonMobil XOM, Pfizer PFE and Under Armour UAA, all reporting Tuesday before the open; and Apple AAPL after Tuesday’s close. That could give investors a better sense of how things are going in the energy, pharma, retail, and info tech sectors, all before Wednesday. Later this week come Facebook FB, Merck MRK, Amazon AMZN, and Chipotle CMG. Fasten those seatbelts.

As if a host of earnings and a Fed meeting weren’t enough for one week, there’s also a boatload of data on tap. The PCE prices report today is worth watching, because the Fed is said to track this one closely for signs of inflation. Chicago PMI and consumer confidence are on Tuesday’s calendar, and Wednesday brings construction spending as well as January auto and truck sales.

Topping off the week on Friday morning is the monthly nonfarm payrolls report, always worth checking. The last few reports have shown decent, but not spectacular, jobs growth. But wage growth tracked by the reports has been very strong lately, with December hourly earnings rising 0.4%. Any continued rise in earnings could play into the Fed’s inflation watch.

Despite all the exciting things going on in the markets, volatility remains historically low. The VIX fell to 10.35 by midday Friday, near its lowest point in more than two years.

Durable Goods Data Paint Mixed Picture

Durable goods orders, which came out Friday, can often give a good sense of consumer confidence as far as purchases of expensive items like refrigerators and dishwashers. The report also provides insight into how much companies are investing in big-ticket items as they run their businesses. December’s headline number fell 0.4%, but it’s important to look at the bigger picture behind the report, because it wasn’t all bad. Most of the headline drop was due to a sharp fall in new orders for defense aircraft and parts, as well as fabricated metals and primary metals. But there was a 0.8% increase in orders for nondefense capital goods excluding aircraft, and business investment remained on a positive trajectory, Briefing.com said.

Stronger Dollar Impact Seen on Multinationals

We talked earlier in earnings season about checking in on some multinationals to see how they’re affected by the rising dollar. Now we’re starting to hear. Remember, a strong dollar can indicate economic vigor, but also can become a challenge for U.S. multinationals because it makes their products more expensive for overseas buyers. In its earnings report Thursday, Caterpillar CAT referred to the dollar as a pressure point. “Our expectation(s) for sales and revenues in 2017 are now slightly lower due to the strengthening of the U.S. dollar over the past two months,” CAT said in a press release. Ford F said its profit in Europe could fall this year from 2016 levels in part “due to weaker sterling,” or British pound.

In For The Long Term? Staying On Plan

This is one of the busiest times of the quarter, and there’s a new president in Washington just to add a bit more excitement. When there’s so much going on, it may seem tempting to start trading on the news, but many long-term investors recognize the importance of sticking to plans and staying with good companies. If you’re in for the long term, and all of us are, to some extent, it could be prudent not to let the noise change your plans. Having a strategy and positioning your portfolio properly makes sense.