All-Star Week Lineup
Since I was a kid, one of the summer’s highlights has been Major League Baseball’s Home Run Derby and All-Star game, which takes place in Minnesota starting tonight. So, with baseball top of mind, let’s take a look at the lineup for the capital markets this week.
- The S&P 500® Index (SPX) opened strongly this morning. Reasons being cited: Citigroup earnings and Goldman Sachs lifting its 2014 year-end price target to 2050 from 1900.
- My good friend Carl Icahn was quoted last week as saying, “In my mind, it is time to be cautious about the U.S. stock markets.” I agree with Carl. However, not all media reported his next statement, which I agree with even more. “While we are having a great year, I am being very selective about the companies I purchase.” It sounds like Uncle Carl is NOT saying “get short,” but just executing some prudence, which makes sense for investors with the SPX at 1975. Let’s not have another “David Tepper moment” like we had in mid-May.
- Roughly 20% of the SPX will report earnings this week. The majority of the companies reporting are financial and technology companies. EPS growth for the financial sector is expected to be flat while the technology sector has consensus estimates at around 15% EPS growth. I am focused on management commentary and the guidance. Is there optimism looking forward, as some of the recent economic data suggests? Keep up on your weekend reading with select conference call transcript reviews.
- Last week, Portugal’s Banco Espirito Santa SA grabbed market headlines. I suspect it will resurface in the news again, but I am rather confident European Central Bank President Mario Draghi and his targeted longer-term refinancing operation, or TLTRO, will neutralize any contagion. I am actually more concerned that Ukraine still has the potential to act as a headwind for the capital markets. The investor defense mechanism is exposure to energy, which has started the third quarter with a modest correction. I suspect that correction is an opportunity.
- Also this week, China’s quarterly GDP will be reported. Consensus has it unchanged at 7.4%. My view is that the Chinese economy has stabilized the decline of the past few quarters. Favorable government policies have been enacted that support growth.
- Finally, speaking of favorable policies, Federal Reserve Chair Janet Yellen will give testimony in Washington D.C. on Tuesday and Wednesday. Expect a slightly more contentious conversation as the midterm election approaches and the transparency of the Fed will once again be debated.
While a testimonial debate might liven up a summer trading session, it won’t be nearly as exciting as watching Yoenis Cespedes and Yasiel Puig do battle in tonight’s Home Run Derby. It might just be a preview of the Fall Classic – A’s versus Dodgers – now that would be exciting!