Will we have a whole generation of Ralph Wiggum’s?
Investors will be watching Fed Chair Janet Yellen’s testimony as another string of earnings come in this week. We will also continue to monitor President Trump’s Executive Orders and potential 3AM tweets. On the economic front, we have a busy week with PPI, CPI, Retail Sales, Building Permits and the Philly Fed.
Chairman Yellen Testifies: Federal Chair Janet Yellen is scheduled to testify to the Senate Banking Committee Tuesday (2/14) and the House Financial Services Committee on Monetary Policy on Wednesday (2/15). At the hearings, investors will be looking for hints as to the timing of interest rate hikes and the potential steepening of the yield curve. If she hints at pushing out interest rate hikes, we could see the US Dollar and Treasury Yields fall. Investors will also be looking for any discussion about the Fed’s balance sheet and when they will normalize the $4.5 Trillion they hold.
Additionally, the committee’s will definitely have a discussion with Janet about the Fed’s “regulatory point man” Daniel Tarullo resigning unexpectedly last Friday. Tarullo likely resigned because he was such a staunch advocate of regulations and Trump is looking to loosen most regulations including Dodd-Frank. Yellen will obviously not state that but will answer with some long convoluted response. Her response on how the Fed will tackle certain regulations may see bank stocks move.
With Tarullo resigning, President Trump now has to fill 3 Fed governor positions. Investors will be looking to see if his nominees fit into his narrative from the campaign trail in that rates have been too low for too long and should be normalized. This person will also likely want to overhaul the regulatory system such as Dodd-Frank and be hawkish. Hopefully, he will not nominate somebody that thinks the Fed is responsible to protect Americans from grizzly bears.
FOMC Members Speak: Besides Janet’s testimony, two additional Fed members (Robert Kaplan and Patrick Harker) are scheduled to speak this week. Investors will be looking for any hints as to rate timing and also potential thoughts on future monetary policy with fiscal policy potentially changing later this year. We will likely hear that they have a wait and see approach with no real substance. We will also listen to their thoughts on who they think the President will appoint to the Fed.
Earnings Chugs Along: Earnings have now seen over 350 companies of the S&P 500 report 4th quarter earnings. 68% have beaten earnings expectations with 48% beating revenues according to Thomson Reuters I/B/E/S. This week has 57 S&P 500 companies and 1 Dow 30 component expected to report Q4 earnings this week. We have seen individual stocks have huge price swings for earnings misses such as Twitter (TWTR) last week. This will continue for the next few weeks.
Low Volatility: The S&P has now gone 40 days without a 1% Intraday Move: The longest streak in history. The VIX has been extremely low since the election currently at 10.9. This is well below its long term average of 20. However, the S&P and Nasdaq still continued to set new all-time highs including this week. We are expecting Trump to make some kind of announcement in the next week or two around tax reform. Until details come out, expect this sideways to higher pattern to continue.
GDP: Japan, Germany, Great Britain and other European Countries are scheduled to report GDP for the 4Q 16. If GDP comes in is less than expected, we may see equities fall in their respective countries as investors will believe their respective economy is not growing as fast as expected. US markets may also fall in tandem as the fall in their GDP could be from US companies and consumers consuming fewer imports from these countries. If we see GDP beat, this would also be a signal that their economies are growing and help push markets higher domestically, and in the US.
Retail Sales: On Wednesday (2/15), Retail Sales are released and investors will get another look at how retailers have performed since Trump became President.
Greece: Greece may be coming back into the forefront as the can kicking of years past shows its ugly head again. For Greece to be eligible for its next round of aid this summer to pay for 6 billion Euros coming due, they have to show they are making enough fiscal cuts. Without the necessary cuts, speculation will again start about the future of the Euro currency. Euro area finance ministers are scheduled to meet Monday (2/20). This is their last meeting before European elections later this year. Since politics would come in to the picture after this meeting, this is their best chance of another round of can kicking. If these talks sour, expect the Euro to fall against the Dollar, European equities to fall and yields on Greek bonds will likely shoot up.