Active earnings release schedule highlighted by the FOMC

US equities traded incrementally higher into record territory last week despite some weakness from recent leaders. Of particular importance for investors is last week’s positive price action, underscored by healthy advance/decline (A/D) metrics. On Friday, the A/D ratio was (2-1). Volume however, slipped on both major exchanges. On Friday for example, NYSE volume was 3.17% lower than Thursday. The Nasdaq saw volume also slip by 3.98%.

Sponsorship for last week’s move higher was broad. Facebook (FB), Amazon (AMZN), and Discover Financial (DFS) all provided lift. This week’s earnings calendar will provide investors and traders with plenty to focus on. We will hear from the likes of Alphabet, Apple, McDonald’s, Lilly, and Continental Resources.

This Week’s Economic Calendar Highlights:

Today we receive Personal Income & Outlays data for March. Econoday consensus is calling for a M/M gain in income of 0.4%, and an even more aggressive M/M gain in spending (0.7%). The M/M PCE Price Index is expected to be 0.3%, core 0.1%. PCE Price Index Y/Y, 1.7%. In that event, income, spending, and inflation would all provide further support to the thesis that is expected out of the FOMC this week that the economy is expanding at a healthy pace, while inflation has remained well-contained.

On Wednesday we receive the ISM manufacturing Index data for April. Econoday consensus is 55.0 versus March’s 55.3. Given the dip in the manufacturing employment number we saw in the last employment report, I would not be surprised to see a tick in the monthly reading that is closer to 52. We also receive the EIA Petroleum Status Report for the week ending 4/26. The previous report reflected a modest gain in crude inventories, while both gasoline and distillates posted a draw.

All that aside, make no mistake about it, Wednesday will be dominated by the FOMC Meeting, Announcement, and Chair Powell’s press conference. Given that a majority of members on the Federal Reserve Open Market Committee have already indicated that they see no need for any additional tightening in 2019, the primary monetary policy concern for equity investors seems to have been largely addressed. Investors will focus on Chair Powell’s press conference in hopes of gauging where the Fed sees the largest threats to the US economy moving forward.

Thursday we receive the Weekly Jobless Claims figures from the week of 4/27. New Claims – Level, based on last week’s release stand at 230k.

Friday is enormously important from an economic data standpoint. As has been well discussed, employment growth over the past 30 months has been remarkable – particularly given the length of the cycle we are in. The previous monthly Employment Report reflected a gain of 196k jobs, an unemployment rate of 3.8%, and a rare contraction in manufacturing employment growth (-6k). Econoday consensus for the April report is due out Friday:

Nonfarm Payrolls M/M: 180k
Unemployment Rate: 3.7%
Private Payrolls M/M: 170k
Manufacturing Payrolls M/M: 10k
Labor Force Participation Rate: 63%
Average Hourly Earnings M/M: 0.3%
Average hourly Earnings Y/Y: 3.3%

Naturally, if the April Employment Report is even close to consensus, look for investor confidence to remain elevated. Also on Friday, we receive the International Trade in Goods for March from the Census Bureau. Consensus is $-74B.
China’s stronger-than-expected March:

The long-awaited trade deal between the United States and China seems increasingly to be less of a driver for US investor optimism – not because it isn’t central to the economies of both countries and the global economy, but because other themes have temporarily supplanted its centrality in terms of near-term investor outlook.

Recent economic data releases from China, for example, have provided a welcome lift to the outlook for the global economy. In March, factory activity rose for the first time in four months. Also in March, China’s industrial profits rose 13.9% from a year earlier according to the National Bureau of Statistics. The strength outlined in March’s data is a welcome relief for investors as the full quarter’s industrial profits actually decreased by 3.3%.

Additionally, China’s central bank, the People’s Bank of China, has cut its reserve requirement ratio five times over the past twelve months with the goal of stimulating borrowing and lending. It appears to be working. The Chinese economy expanded at a faster than expected pace of 6.4% in Q1.

March’s better-than-expected Chinese economic activity may well give it a stronger hand in trade negotiations with the US, but it is too early to tell. One month does not a trend make.

My Take Away:

US equity markets edge higher and continue to be driven by better than expected Q1 corporate results and indications that the economy is regaining a degree of momentum after a slow start to the year. The earnings recession that I and many others were expecting to act as a damper of equity returns has yet to materialize. Given the run-up in prices we have been treated to, and to the record closes established last week, I remain cautious, though I must admit that my caution appears a bit unwarranted as we look to open the trading week.

Select earnings highlights this week:

Alphabet (GOOG) consensus EPS: $10.56
Continental Resources (CLR) consensus EPS: $0.47
SBA Communications (SBAC) consensus EPS: $1.89
Transocean Ltd. (RIG) consensus EPS: $-0.29
Western Digital (WDC) consensus EPS: $0.23
Advanced Micro Devices (AMD) consensus EPS: $0.02
Akamai Tech (AKAM) consensus EPS: $0.79
Amgen Inc. (AMGN) consensus EPS: $3.45
Apple (AAPL) consensus EPS: $2.37
Baker-Hughes (BHGE) consensus EPS: $0.14
Chubb Limited (CB) consensus EPS: $2.49
Corning (GLW) consensus EPS: $0.38
ConocoPhillips (COP) consensus EPS: $0.92
Eli Lilly (LLY) consensus EPS: $1.32
General Motors (GM) consensus EPS: $1.09
McDonald’s (MCD) consensus EPS: $1.73
Merck (MRK) consensus EPS: $1.05
Marathon Oil (MRO) consensus EPS: $0.06
Prudential Financial (PRU) consensus EPS: $3.11
Qualcomm (QCOM) consensus EPS: $0.54

Photo by Hanson Lu on Unsplash

Kenny’s Commentary subscribers receive the note in their inbox Monday’s before the US markets open plus media, charts and Sam Stovall’s analysis Subscribe