World Week Ahead: Wall St seen powering higher

Monday 25th July 2016

A Federal Reserve policy meeting, a slew of US earnings including from Apple, Facebook and Twitter, as well as a flurry of economic data will take centre stage this week as investors are trying to gauge whether fresh records on Wall Street are justified.

The Federal Open Market Committee starts a two-day meeting on Tuesday. Without expectations for a change in interest rates and no post-gathering press conference, investors will look for insight on the timing and direction of a rate move.

Most analysts still expect the Fed might hike next, rather than cut, especially since the latest data have bolstered the view that the US economy is on track.

“Below it all is just an ongoing trend of better economic reports,” Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis, told Reuters. "Some of those are earnings reports, but they all line up to the same thing: It looks like growth is quickening.”

In addition, corporate earnings so far have by and large surprised on the positive side too including Stanley Black & Decker on Friday. General Electric was among the companies that disappointed with a drop in its industrial orders in the latest quarter.

Second-quarter earnings for S&P 500 companies are now expected to decline by only 3 percent, compared to the 4.5 percent drop estimated at the start of the month, according to Thomson Reuters I/B/E/S.

Amazon.com, Alphabet, McDonald's, Verizon, Boeing, Merck, Exxon Mobil and Chevron are poised to report their latest earnings this week — among the almost 200 companies scheduled to do so.

Last week, the Dow Jones Industrial Average rose 0.3 percent, the Standard & Poor’s 500 Index advanced 0.6 percent, while the Nasdaq Composite Index climbed 1.4 percent. The S&P 500 ended Friday at a fresh record high.

Scott Minerd, chief investment officer at Guggenheim Partners, told Bloomberg that he is bullish on US equities, seeing the potential for a 10 percent to 15 percent rise in the S&P 500 through the rest of the calendar year. “Risk assets will do well. We won’t have a black swan event.”

This week also offers a wave of US economic data including the Dallas Fed manufacturing survey, due today; S&P Case-Shiller home price index, PMI services, new home sales, consumer confidence, and the Richmond Fed manufacturing index, due Tuesday; durable goods orders, and pending home sales index, due Wednesday; international trade in goods, weekly jobless claims, and Kansas City Fed manufacturing index, due Thursday; and GDP, employment cost index, Chicago PMI, as well as consumer sentiment, due Friday.

“The economic data we’re seeing from the US has contributed a lot and has fortified the belief that the market can hold itself,” Bill Schultz, chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, told Bloomberg. “Earnings season is bringing out a bit more optimism and that’s taking us away from those defensive names that we saw move earlier post-Brexit.”

Corporate deals, or rumours thereof, also helped support Wall Street. Shares of Verizon ended 1.3 percent higher on Friday amid reports it is close to a deal to buy Yahoo. Yahoo shares closed 1.4 percent stronger.

Last week Europe’s Stoxx 600 Index posted a gain of 0.7 percent.

The Bank of Japan might announce additional stimulus on Friday, potentially with a rate cut and by increasing its asset purchases, after its policy meeting.

BusinessDesk.co.nz

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