In­vestors look to Fed, earn­ings for di­rec­tion

The Pak Banker - - BUSINESS -

In­vestors hop­ing eq­ui­ties can sus­tain their re­cent bounce next week will care­fully watch the U.S. Fed­eral Re­serve's mid-week pol­icy meet­ing for signs the cen­tral bank may slow the path of in­ter­est rate hikes.

The S&P 500 (.SPX) has al­ready fallen as much as 9 per­cent this year, with stocks bat­tered by con­cerns over China's slow­ing econ­omy, plung­ing oil prices and Fed Vice Chair­man Stan­ley Fis­cher's com­ments that he ex­pected about four rate hikes this year.

But in­vestors ex­pect the Fed may soften its tone on in­ter­est rates when it con­cludes a two-day meet­ing on Wed­nes­day, es­pe­cially af­ter Euro­pean Cen­tral Bank Pres­i­dent Mario Draghi on Thurs­day raised the prospect of pol- icy eas­ing in March. "The spec­u­la­tion is the mes­sage will con­tinue to be dovish from the Fed­eral Re­serve and the four rate in­creases they have been talk­ing about is not re­al­is­tic, so that is be­ing viewed as a pos­i­tive" for stocks said Ken Pol­cari, Di­rec­tor of the NYSE floor divi­sion at O'Neil Se­cu­ri­ties in New York.

In­vestors will also deal with a flood of cor­po­rate earn­ings re­ports, with re­sults from big names in a range of sec­tors that will point to whether the out­look for fourth-quar­ter earn­ings was overly pes­simistic. Among the Dow com­po­nents ex­pected to re­port are Boe­ing (BA.N), McDon­ald's (MCD.N), 3M Co ( MMM.N) and United Tech­nolo­gies (UTX.N). In­vestors will watch th­ese large multi­na­tion­als for in­di­ca­tions of how the strong U.S. dol­lar is af­fect­ing ex­ports and profit mar­gins.

Also due to re­port is tech bell­wether Ap­ple Inc ( AAPL. O), the big­gest U.S. com­pany and the one most widely held by in­di­vid­ual in­vestors. It will be closely watched for signs of a de­cline in iPhone sales af­ter soft sales fore­casts from some of its sup­pli­ers, which could seal a third straight month of de­clines for the stock, which has an out­sized ef­fect on the broader mar­ket.

"We are go­ing to be pro­vided the clear­est pic­ture of not just back­ward look­ing fourth-quar­ter earn­ings, but much, much, much more im­por­tantly, guid­ance," said Peter Kenny, equity mar­ket strate­gist at Kenny & Co LLC, in Den­ver. "Guid­ance is go­ing to be sig­nif­i­cantly more im­por­tant in terms of that over­all con­ver­sa­tion of whether the US econ­omy weath­er­ing the global storm."

Names such as Hal­libur­ton (HAL.N) and Hess Corp (HES.N) will pro­vide some of the first clues of the dam­age done to earn­ings in the en­ergy sec­tor. Thom­son Reuters data shows earn­ings are ex­pected to de­cline a mas­sive 73.3 per­cent for the group. Along with en­ergy, de­clin­ing fore­casts for the ma­te­ri­als, fi­nance and tech­nol­ogy sec­tors have pushed any ex­pected re­turn to growth in earn­ings for the S&P 500 off un­til the se­cond quar­ter. "When you start to look at some of the fore­casts for earn­ings growth in 2016, you're not ex­pected to see much in the first quar­ter or se­cond," said Robert Pav­lik, chief mar­ket strate­gist at Bos­ton Pri­vate Wealth in New York.

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