The price action during the last week has been rather dull, but that will change in the next few days. Asset Managers don’t want to “stick their head in the noose” and they will wait for earnings releases.
Major banks are dominating the scene and the results have been good. Last week, Wells Fargo beat on the top and bottom line. This morning, J.P. Morgan exceeded earnings estimates by 20% and Goldman Sachs exceeded estimates by a whopping 48%. The reaction has been muted, but the financial sector will eventually attract buyers.
EBay will announce after the close today and I am expecting excellent results. Perhaps the biggest release of the week will come tomorrow after the closing bell. Intel will set the tone for the tech sector. PC sales are down, but they have entered into the mobile arena and will soften the blow. The results will be better than feared.
Thursday night, China will release major economic reports (industrial production, retail sales and GDP). Analysts are expecting GDP growth of 7.8%. China is the cornerstone to global economic growth and the new leadership will keep its foot on the gas pedal. The news should be good and it will set a positive overnight tone.
Friday morning, General Electric, Johnson Controls, Morgan Stanley, Parker Hannifin, Schlumberger and State Street will post results. The banks will report solid results and Johnson Controls should do well given recent spike in auto sales. Oil drilling has been brisk and that should bode well for PH and SLB. General Electric provided guidance in the middle of December and I’m not expecting any surprises.
The market is at a five-year high and Asset Managers won’t chase. Revenues and profits will be flat. As long as the guidance is not dire, investors will buy stocks. Bond yields are at historic lows and strong balance sheets/cash flow will attract money.
As earnings season unfolds, the bid will strengthen. Asset Managers will ignore the debt ceiling. Any decline will be nothing more than a temporary speed bump and they will buy the dip. Once the debt ceiling is extended, the market will rally.
The Republican Party is divided. Half of the Republicans feel that the debt ceiling can be used to negotiate spending cuts and the other half feels that the risks are too high (threat of default could jeopardize our credit rating). More Democrats than Republicans took office this year and the GOP’s power is slipping. The debt ceiling extension will come down to the wire, but this will not be a major standoff.
Strength in China will offset weakness in Europe. Domestic economic activity is stable and Democrats will soon have a blank check. European credit concerns are subdued and central banks around the globe are printing money like mad. These forces and a lack of investment alternatives will push the market higher.
We all know that massive deficits will eventually lead to a financial collapse. This Ponzi scheme can continue for a long time. As long as interest rates remain low, the market will rally.
I am still day trading and I want some of this nervousness to dissipate. I might take a bullish overnight position tomorrow – I will keep it small.
The news was generally good today and I believe the market will inch higher into the close.