Key Takeaways
- Alphabet, Amazon, Microsoft All Report Earnings This Week
- Bed, Bath And Beyond Files Chapter 11
- U.S. Dollar Continues Its Slide
Following a very quiet week, things could get much more interesting as we head into the thick of earnings season. This week alone, almost one-third of the S&P 500 is scheduled to report. At the same time, we’re going to get data on New Home Sales and the most recent reading on Personal Consumption Expenditures (PCE).
Although the S&P 500 was down ever so slightly last week, it marked the end of a five week winning streak. During that period, stocks gained nearly 9%. I mentioned in an earlier column that some of the names driving the market were not the household names investors are accustomed to and compared those companies to the third line in hockey. This week, the starters are back on the ice and we’ll see if that 9% gain can hold or possibly move higher.
Companies scheduled to report this week represent a broad cross-section of the economy. Visa and Mastercard will offer a view into consumer spending. Boeing will give clues as to how the transportation industry is fairing. Finally, the all-important tech sector, which has largely led markets higher, will hear from Google parent, Alphabet, Amazon, Facebook parent, Meta Platforms and Microsoft to name but a few.
The tech sector will be especially interesting because of the large scale layoffs taking place since last summer. I’ve spoken about the effect I believe severance packages are having on the economy and perhaps giving a false sense of security with respect to consumer spending. As we move later into the year though, those packages will begin expiring. I’m very curious if spending can continue and what impact that may have on credit card companies as well as things such as new home purchases. I’m also interested in how job cutbacks will impact corporate spending on software licenses and cloud computing.
Each quarter I talk about the forward looking statements companies provide and the importance of those statements. The reason I emphasize that aspect of an earnings report is because it serves as a sort of economic forecast. Forward looking guidance is predicated on the strength of the overall economy. Therefore, it stands to reason the more turbulent the economy, the more important those forecasts become as investors seek some sort of clarity about what’s to come. With the exception of 2020 and the onset of the pandemic, this is arguably the challenging economic environment we have faced in recent memory.
There are a couple other stories I’m following this morning including Bed, Bath and Beyond filing for Chapter 11. Just a year ago, shares of Bed, Bath and Beyond were trading at $17. Today, shares are indicated to open under $0.20 in premarket. The collapse of this company is significant in more than one respect. First, it is the second major retailer to fail recently. David’s Bridal also declared bankruptcy just last week and will be laying off 9,000 workers. Bed, Bath and Beyond employs about 14,000 people and occupies a significant amount of retail space. The closing of those stores comes at a time when commercial real estate is struggling and those empty locations may prove difficult to lease.
The other story I’m watching is the weakening U.S. dollar. Since February, the dollar has fallen in six of the last eight weeks. The question here is whether this is a case of the dollar forecasting where interest rates are headed or if recent weakness is simply a result of higher rates in other countries. Therefore, I am very interested in this week’s PCE report, due out on Friday and just ahead of next week’s Federal Reserve Open Market Committee (FOMC) meeting. As of now, markets are assigning a 90% probability of a quarter point rate hike, but I’ll be monitoring that number throughout the week.
For today, I’m closely watching VIX. On Friday, VIX closed well below 17, which is interesting given all the news coming out this week. I’ll also be curious to see how interest rates react to the combined economic data and earnings. Currently, yields on the benchmark 10-year note are just over 3.5%. Regardless of how this week ultimately shakes out, the best way to avoid getting caught in any chop and throwing out your back is to simply stick with your investing plans and long term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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