The US stock market finished at record highs last Thursday, with investors cheered by positive macroeconomic developments like increased activity in the manufacturing sector and evidence that improvements in the labor market are gaining momentum.
By Peter Martin
Monday, July 7, 2014
As we begin a fresh week, though, attention has swung away from the big picture to focus instead on the more granular consideration of how individual corporations have been faring, as the quarterly reporting season swings around again. Although there is no official date that denotes the beginning of the quarterly earnings season, aluminium producer and former Dow component Alcoa is generally accepted as kicking off proceedings when it announces, and we will be seeing the company’s second-quarter earnings on Tuesday.
Earnings from the majority of the S&P 500 companies will follow thick and fast in the next few weeks. While the June jump in payrolls has encouraged hopes that second quarter growth will be healthy, the market will be seeking corroboration from CEOs that their outlooks remain upbeat. The tone set by forward guidance could prove crucial this week, therefore, with Wells Fargo on Friday one of the first out of the gates for the financial sector and a candidate to set the early tone for the big banks.
With these earnings announcements looming, it is a convenient and understandable time for investors to have a breather and have a little worry over valuations, which have been edging further and further skyward in recent trading sessions. Consequently, prices have retreated from last week’s highs, with the Dow Jones Industrial Average falling 0.31% or 52 points by early-afternoon in New York, while the broader S&P 500 index slid 0.42% to 1976.9.
The Fed will also be in focus this week, with the publication of the minutes from last month’s FOMC meeting. Fed Chair Janet Yellen set a dovish tone at the press conference that followed that meeting, insisting that accommodative policy would be adhered to by the central bank for a ‘considerable time’ after the current stimulus program concludes and that the target federal funds rate would likely be kept below its longer-run normal level for some time even after employment and inflation are close to target, warning that the potential growth rate of the economy may be lower for some time. Goldman Sachs has revised its forecast for when the Fed will introduce a rate hike, however, citing inflation numbers that have ‘surprised on the upside’ in a report yesterday that brought forward its projection for when the Fed will raise the federal funds rate from the first quarter of 2016 to the third quarter of 2015.
The Bank of Canada in its quarterly Business Outlook Survey, meanwhile, reported easing in inflation expectations for the second quarter, following a steep rise in the spring survey, with many Canadian firms expecting input rises to remain steady over the next 12 months, with sluggish domestic demand and strong competitive forces working against rises in output prices. USD/CAD rose 0.19% to 1.0672.
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