Market Overview

Stock Marquee Crowded With Oil, Apple, And The Fed

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Investors will be treated to a buffet of economic data this week, covering consumer attitudes, housing, a GDP revision, and more (see the full calendar below). But attention midweek will likely turn to the Federal Reserve, whose members will gather to deliberate interest rate policy against the backdrop of a rough and tumble market environment.

Volatile trading could continue, evident in last week’s performance (figure 1). It featured deep down days to start the holiday-shortened, four-day stretch and a late-week recovery. The whipsaw stock action was tethered to the crude oil market and that’s unlikely to change in the foreseeable future.

Top of mind for Fed policymakers and investors is continued volatility in the oil market, where crude last week plunged below $28 a barrel—the lowest in over a decade—only to bounce back above $30 at week’s end and was on track to log its first weekly gain in a month. Industry analysts were scratching their heads a bit, noting a lack of change to the fundamental picture for oil: heavy supplies, status quo production, and the risk of weaker energy demand from giant customer China.

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Fed Focus: Change in View?
It should be an interesting conversation at the Fed, whose speeches reveal a panel that remains in “tightening mode”—we think, let’s see what they say this week. Compare that mindset to the thinking of many of the Fed’s global counterparts who just this week pledged openness to more steps to grease economic growth. The European Central Bank’s Mario Draghi said his bank has “no limits” to using monetary instruments to plump up inflation. An aide to Japanese Prime Shinzo Abe said last Thursday that “conditions for additional easing have fallen into place,” according to The Wall Street Journal. The Bank of Japan will meet on Jan. 28-29, and some industry analysts expect the central bank’s asset-purchasing program could be increased.

In minutes from the Fed’s December meeting, released in early January, member concern for persistent sluggish inflation emerged. It was at that meeting—deemed a “close call” by some on the Fed board—that the U.S. central bank raised interest rates from near zero for the first time in nearly a decade. From here, investors are carefully assessing any clues on the potential clip of interest rate increases.

The Fed’s own so-called “dot plot” charting member expectations and last refreshed for the public in December signaled four more expected rate hikes in 2016, roughly one hike each quarter. But January may be more about reflection. At last check, short-term Fed funds futures market traders have priced in only 12% odds for a repeat hike in January, according to pricing calculations provided on the CME Group’s FedWatch Tool. Bump up that potential to 29% for the March meeting, although that reading had been scaled back from some 50% odds at the time of the December meeting; April odds for a rate hike sit at 36% currently.

And for Earnings?

Apple Inc. (NASDAQ: AAPL), Facebook, Inc. (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMZN), and Alibaba Group Holding (NYSE: BABA) are among the companies slated to release late-2015 earnings results over the coming days.

AAPL shares dramatically fell 15% over the past three months, outpacing the 7% drop for the Dow Jones Industrial Average ($DJI). Select analyst notes that revised estimates for iPhone sales were among the factors weighing on the shares.

Industry analysts expect Apple to report revenue of $76.7 billion, according to FactSet, up from $74.6 billion in the same period last year. In October, Apple provided guidance of between $75.5 billion-$77.5 billion. Keep in mind, the Street has been challenged to get this one right—Apple has topped Street expectations in five consecutive quarters.

The earnings list includes a few industrial names, too, including Ford Motor Company (NYSE: F) and Caterpillar, Inc. (NYSE: CAT), both of which could provide a snapshot into global demand health looking into early 2016 and the impact of a strong U.S. dollar on those overseas results. Car sales have been relatively strong even as consumer spending generally has lagged job market growth. Pharmaceutical results that include Bristol-Myers Squibb Company (NYSE: BMY) and Eli Lilly and Company (NYSE: LLY) round out the roster.

Once again, there’s no shortage of economic and company-specific catalysts to potentially drive market action in what’s been a gut-testing start to 2016.

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