Earnings: A Big Role This Week
Before we get into the subject of recent volatility, it is important to understand
the primary market driver in the days ahead - earnings. From The
Wall Street Journal:
Twelve Dow industrials components and 146 S&P 500 companies are set
to post earnings this week, including Apple, Microsoft and Ford, according
to FactSet. "This is peak earnings season week," said Doug Cote, chief
market strategist at Voya Investment Management. "I'm expecting continued
good news. My expectation is that we're going to handily beat consensus
earnings."
Volatility To Ignore?
In the graph of the S&P 500 below, if markets moved in a linear fashion,
managing risk would be much easier. It would be easy to leave our investments
alone between point A and point B. It would have been easy to spot that something
was changing between points B and C, and much easier to discern something had
changed for the worse between points C and D.
Unfortunately, markets are volatile. Therefore, from a risk management perspective
it is helpful to have tools that help discern between "volatility to ignore" and "volatility
to respect. This week's video covers the topic in the context of recent volatility
in the U.S. stock market.
Good Sign For The Economy?
Earnings are not just about numbers. The market is always interested in forward
looking statements regarding the economy. Energy producers may be providing
some insight. From Reuters:
Halliburton Co (HAL.N), North America's top oilfield services provider,
said it would add fracking equipment and crew to take advantage of higher
demand in the region, signaling an industry-wide recovery after a two-year
slump.
Investment Implications - Eye On Conflicts
Even with the S&P 500 down as much as 12 points in Monday's session, support
shown in the chart below remained in place.
The markets are dealing with unrest in the Middle East and Ukraine. From The
New York Times:
As diplomatic pressure for a cease-fire mounted on the conflict's 14th
day, the Palestinian death toll topped 500 and the number of Israeli soldiers
killed hit 25, more than twice as many as in Israel's last Gaza ground
operation in 2009. Two Israeli civilians have also died from rocket and
mortar fire.
From a separate New York Times article:
After days of obstruction, Russia-backed separatists in eastern Ukraine
permitted Dutch forensics experts on Monday to search the wreckage of the
downed Malaysia Airlines jetliner destroyed by a surface-to-air missile,
allowed bodies of the victims to be evacuated by train and agreed to give
the plane's flight recorder boxes to the Malaysian government. The movements,
four days after Malaysia Airlines Flight 17 exploded and crashed in an
eastern Ukraine wheat field, came as President Vladimir V. Putin of Russia
faced a growing international clamor to clear the way for a full and unimpeded
investigation of the disaster.
The evidence we have in hand continues to call for a prudent allocation to
U.S. stocks (SPY), and leading sectors (QQQ). However, with markets nervous
about the Fed, geopolitical events, and earnings, flexibility remains as important
as ever.
Tuesday brings reports on inflation and housing. Never a dull moment.
