Bank Earnings, Fuzzy Retail Picture And More At Play In Stock Market

There’s much to chew on in the stock market this week, not limited to an intensifying earnings line-up that features big banks and some potentially sensitive economic readings for a Federal Reserve likely still mulling the timing of the first interest rate hike since 2006.

Volume could be slower to start with some U.S. desks seeing limited action due to the Columbus Day holiday; markets are open and trading.

Potential deal news could also share the slate in this busy earnings and economic data week (see the full data release calendar below). Dell will reportedly soon announce the biggest pure tech tie-up in history after the privately run PC maker agreed to acquire data storage firm EMC Corporation EMC, Reuters and other media are reporting. The reports peg the deal price at more than $53 billion. However, as part of the deal EMC will have up to 60 days to solicit bids from other potential suitors, Reuters reports. The "go-shop" provision is meant to avoid a public confrontation with activist investor and stake holder Elliott Management, the reports said. Also at issue: What will happen to EMC's 80% stake in VMware, Inc. VMW?

Could any one or more of these catalysts be the driver that tests the CBOE Volatility Index’s (VIX) ability to hold below the closely watched 20 line? The VIX dipped toward 18 in early October after remaining above 20 through most of September (figure 1). And 20 is an area that several market observers believed could potentially anchor a new range for VIX. The index, sometimes known as a “fear gauge” due to its tendency to spike during periods of market mayhem, is now a far cry from the panic levels north of 50 hit in late August. VIX tracks short-term SPX options.

Fed Debate Won’t Die

And of course the interest rate watch goes on. Here’s the latest twist. U.S. Federal Reserve policymakers are still likely to raise interest rates this year but that is "an expectation, not a commitment," Fed Vice Chairman Stanley Fischer said at a weekend International Monetary Fund (IMF) meeting in Peru, according to media coverage.

"Considerable uncertainties" still surround the U.S. economic outlook, he said. This includes the drag on exports from slowing global growth, low investment caused by the decline in oil prices (although oil in recent sessions has climbed back up for a solid test of $50 a barrel), and the recent "disappointing" drop in U.S. jobs, Fischer said.

Financials On Tap

Much of the stock market is sensitive to the economic ramifications of Fed decisions, of course. But perhaps the sector with the most near-term sensitivity is the financial sector. A number of its members—including GS, BAC, WFC, C, JPM, and MS—are due up with earnings reports this week. It’s true that the broader indexes have recovered from losses sustained in late August. But the banks? Not so much. The Fed's decision not to raise rates, coupled with economic concerns, and volatility-spiking trading conditions, have lowered some industry analyst expectations for financial sector earnings growth.

Another sensitive area remains the moody consumer. U.S. consumers are spending on cars and homes in recent months but perhaps not at the clip that might be expected at this point in an expansion. Are they too rattled by Fed and global market uncertainty? Let’s take a closer look mid-week when retail sales data hit and as the consumer-focused earnings list heats up.

Inflation data also populates the calendar this week. Lack of inflation has afforded the Fed little immediate traction with which to remove overly easy monetary policy. At least so far. Will this week’s data show us anything different?

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