Market Points Toward Possible Test Of Record Highs Despite Twitter Results

It’s been a pretty flat week so far, but there was a sense that this morning’s earnings could put a little fizz into the market and give investors something to tweet about. Namely, both CocaCola KO and Twitter TWTR posted quarterly results today, and stock futures pointed to another possible test of recent highs.

Unfortunately, tweets about TWTR’s earnings may not be the type the company had been hoping for. TWTR shares fell more than 9% in pre-market trade after the company missed revenue estimates. On the plus side, daily active usage accelerated for the third-consecutive quarter, TWTR said in a press release, but “revenue growth continues to lag audience growth.” The company sees strong audience growth continuing.The takeaway from today’s TWTR earnings seems to be that the well-documented problems in company direction continue to haunt TWTR.

KO also had a somewhat disappointing quarter, although it matched earnings estimates and beat revenue expectations. Net revenue fell 6%, due in part to what the company called a “headwind” from foreign currency exchange, and the stock came under a bit of pressure early in the day. Inflation in some Latin American countries seems to be hurting KO, and the strong dollar has been a bit of an impediment to some of the multinationals this reporting season.

To date, quarterly earnings continue to outpace overall expectations with more than two-thirds of S&P 500 companies having reported. S&P 500 companies are now anticipated to report a Q4 earnings rise of 6.7%, up from the beginning-of-the-quarter estimate of 4.2%, said research firm CFRA.

Overseas, many markets in Europe and Asia rose early Thursday, with European markets helped by earnings. There’s renewed hope of better growth in Europe.

Data is a little light toward the end of the week, but weekly jobless claims totaled 234,000, well below the 250,000 anticipated by Wall Street analysts and another sign, perhaps, of economic vitality. But there’s little real news out there besides some remaining earnings, and the market may continue to dance around without much direction.

Though trading Wednesday hugged the flat line, for the most part, the Nasdaq once again set an all-time high, and the S&P 500 (SPX) made slight gains and remains near its all-time high as well. Weak financial sector performance put some hurt into the Dow Jones Industrial Average ($DJI).

The financial sector came under more pressure, falling for the third-straight session. Some of this might be chalked up to this week’s decline in interest rates (see below). Higher interest rates generally help bank stocks by making their loan business more profitable, and the rally in financials that began around Election Day coincided with a sharp uptick in Treasury yields. Financials remain one of the best-performing sectors so far this year despite this week’s performance, likely helped in part by hopes of more infrastructure spending, tax reform, and de-regulation under the new administration.

Real estate and utilities, both rate-sensitive sectors, posted the biggest sector gains Wednesday even as financials slumped. Consumer discretionary was another leader, even though a major company in that sector, Walt Disney DIS, delivered somewhat disappointing earnings results.

Fed speakers today include St. Louis Fed President James Bullard this morning and Chicago Fed President Charles Evans this afternoon.

From a technical perspective, resistance for the SPX is up at 2300, a big round figure that also marks psychological resistance. Support rests at the 2272 level, a support point that the market tested but proceeded to bounce back from several times in recent weeks. VIX recently was down a little at 11.37, indicating low chances of near-term volatility.

Oil Turns Around Despite Huge Supply Jump

Crude futures fell to one-month lows Tuesday amid expectations of a possible big jump in weekly U.S. stockpiles. But when Wednesday’s government stockpiles report indeed showed a huge build of more than 13 million barrels, the price of crude did an about-face and climbed back above $52 a barrel. There was some talk that a surprise fall in gasoline stocks helped oil recover, as the gasoline usage helped put to rest some concerns about falling U.S. energy demand.

Fed Perspectives Mixed

Anyone hoping for a consistent tone from Fed speakers is probably disappointed of late. Minneapolis Fed President Neil Kashkari, in a blog post earlier this week, took a seemingly dovish tone, noting that core inflation of 1.7% year-over-year remains below the Fed’s 2% target, and that full employment hasn’t been reached. “From a risk management perspective… if we are to err, it is better to err on the side of being more accommodative than being more restrictive,” Kashkari wrote. His words contrasted with those of Philadelphia Fed President Patrick Harker, who said earlier this week that he doesn’t want “to get behind the curve” on inflation. He supports three rate hikes this year, with the first perhaps as soon as next month. So, it seems the market is back to reading the Fed’s tealeaves. Expect more of that next week when Fed Chair Janet Yellen speaks to Congress.

March Rate Hike Odds Still Low

Odds for a rate hike next month stood at 9% early Thursday, down from 17% before the Fed’s week-ago meeting, according to Fed funds futures. The lower rate hike expectations go along with a rally in the bond market that’s sent 10-year Treasury yields down to their lowest levels in three weeks, near 2.33% on Wednesday before recovering a bit to 2.35% early Thursday. That’s still a significant drop from nearly 2.5% a week ago.