Pressure From Japan: Interest Rate Decision Weighs, But Earnings In Focus

U.S. markets appeared caught in some cross currents early Thursday, with the Bank of Japan’s interest rate policy competing with a slew of earnings for attention.

The Bank of Japan surprised some investors early Thursday by deciding to keep interest rates steady rather than add new stimulus. That news helped push stock markets lower overseas and contributed to pressure on U.S. stocks early Thursday. It also contributed to a rise in the yen and weakness in the dollar. While a weak dollar isn’t necessarily bad news for U.S. stocks over the long haul, it seemed to be providing some pressure in the immediate aftermath of Japan’s rate decision. Recall that the U.S. Federal Reserve left rates unchanged on Wednesday, a move that was expected.

If the Bank of Japan hadn’t surprised the market, the focus would likely have been squarely on earnings. Today is one of the heaviest earnings days of the season, and key companies reporting include Amazon AMZN, Amgen AMGN, LinkedIn LNKD and Baidu BIDU. Earlier today, Ford F reported earnings, and the numbers were good. Ford beat estimates and set a record for profit, with strong SUV sales. The entire auto sector has been doing very well, with SUV sales leading the way.

So far this earnings season, just over 78% of companies reporting have beaten consensus estimates. But it’s important to remember that companies and the overall market had very low expectations. The constant theme seems to be that earnings are beating estimates but estimates are so low they can’t help but beat them.

Oil futures, which reached a new 2016 high above $45 on Wednesday, looked like they were consolidating around that level early Thursday, digesting the sharp gains of the last two days. One thing to watch: As oil prices keep ramping up, it may cause U.S. producers to put rigs back to work and raise production. The level where that happens could be in the $45 to $50 a barrel range.

Some data came out before the open, with U.S. Q1 GDP reported up 0.5%, vs. consensus expectations for 0.7%. Initial jobless claims were 257,000 vs. expectations for 259,000. Still a strong labor market, but the economy appears to be struggling.

Fed Leaves Rates Alone, Won’t Commit On Outlook: After Wednesday’s conclusion of this week’s FOMC meeting, where the Fed left rates unchanged as most investors had expected, the Fed seemed to “walk the tightrope” in its statement, describing economic conditions basically as not too strong but not too weak. “The labor market improved amid signs of slower growth,” the statement said, and the reference to global events posing risks that had been in previous Fed statements was removed. But the Fed still managed to balance by stating that market-based inflation was still low. The housing sector improved since the start of the year while spending, investment and exports were all soft. All giving a balanced look at a Fed unwilling to commit to either direction

Amazon Pops After Facebook Reports: Shares of Amazon AMZN, which had fallen as much as $10 during Wednesday’s session, climbed sharply in after-market trading after Facebook (FB) handily beat consensus with its earnings. Amazon reports after the close Thursday, and it looks like the strong Facebook results might have contributed to the post-close strength in Amazon. As for Facebook, its earnings results appeared high in quality, as it beat estimates on both earnings per share and revenues. The company also announced a new share structure that would allow CEO Mark Zuckerberg to sell some of his shares while maintaining control of the company. Facebook shares had been grinding lower so far this month, but made back their losses in one fell swoop after the close Wednesday once investors got wind of the company’s strong earnings.

Can Biotech Earnings Help Ailing Nasdaq? The Nasdaq Composite Index (NASDAQ), under pressure from disappointing tech earnings, fell Wednesday for the fifth-straight day, the longest losing streak since early January. The index is about 7% below its 52-week high. So if tech earnings aren’t exciting investors, how about that other key Nasdaq component: Biotechnology? One of the biggest biotech names, Amgen (AMGN), reports after Thursday’s close, and consensus is for quarterly revenue of $5.32 billion and earnings per share of $2.60. Amgen has surpassed estimates each of the last seven quarters. Celgene, another major biotech, reported before Thursday’s open, and Illumina ILMN reports next week. So is it biotech to the rescue? The Nasdaq Biotechnology Index is up about 6% this month after falling 23% in the first quarter, and the earnings reports ahead may help determine whether the fledgling rally in that sector continues.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2016 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.