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Ahead of Wall Street

Wednesday, February 10, 2016

Stocks are indicated to start today’s session in positive territory, with Europe-centered optimism about the banking industry likely the big driver. Whether these opening gains can carry through to the end of the session will depend on how markets interpret Janet Yellen’s two-day Congressional testimony that gets under way later today.

Part of today’s optimism is centered on a sigh of relief in Europe on reports that Deutsche Bank (DB) was contemplating buying back part of its own debt as a way to reassure the markets of financial strength. Concerns about the bank had been bouncing around in the market in recent sessions, weighing down the entire banking sector. This appeared to be becoming an issue for U.S. banks as well, who were already struggling with the fresh downturn in benchmark treasury yields safe-haven flows, even though the U.S. banking industry is in a lot stronger position as a result of greater capital requirements mandated by regulatory changes in the wake of the 2008 crisis.

The key event on today’s calendar is the Fed Chairwoman’s Congressional testimony, with market participants looking for hints of the Fed walking back from its earlier plan of four rate hikes this year. As expected, there were no such pointers in the Chairwoman’s prepared remarks that were released earlier this morning.

The prepared remarks acknowledge the soft growth in Q4, the tightening in ‘financial conditions’ — the Fed’s code for the market – and the continued weak run of near-term conditions. But it reiterates the FOMC’s plan for a ‘gradual’ increase in the Fed Funds rate.

The Fed is in a tight spot at present, with its monetary policy outlook out of sync with market expectations. The odds of another rate hike at next month’s FOMC meeting remain very low already, with market participants in the process of sizing up the central bank’s entire policy trajectory for the year and beyond. The market moving part of the testimony will be in the Q&A session, where any sign of incremental concern about the economic outlook will likely get read as a dovish signal.

Let’s not forget that we are still in the midst of the Q4 earnings season, which has by and large turned to be fairly weak. The all-around growth challenges highlighted by this earnings season may not have been new or come as a surprise to many of us, but they aren’t going away any time soon either. Estimates for the current and following quarters are coming down at an accelerated pace in recent days, with growth in the first half of the year now expected to be in the negative as well.

Including this morning’s reports from Humana (HUM), Time-Warner (TWX) and others, we now have Q4 results from 346 S&P 500 members that combined account for 80% of the index’s total market capitalization. Total earnings for these companies are down -5.7% from the same period last year on -4.6% lower revenues, with 67.4% beating EPS estimates and 47% coming ahead of revenue estimates.

The blended (or composite) picture for the quarter — combining the actual results from the 346 index members with estimates from the still-to-come 154 companies — is for earnings to be down -6.7% on -4.4% lower revenues, the third quarter in a row of negative earnings growth for the index. Estimates for the current period are coming down at an accelerated pace, with total earnings for the S&P 500 index currently expected to be down -7.5% from the same period last year.

Sheraz Mian
Director of Research

Note: In addition to this daily pre-open article about the market, economy, and the corporate earnings picture, Sheraz Mian also provides detailed earnings analysis in his weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz Mian publishes a new article, please click here.

Stocks On The Move

Company Symbol Price $Change %Change
WAYFAIR INC W 34.48 2.59 8.12
WALKER & DUNLOP INC WD 23.20 1.54 7.11
SEQUENOM INC SQNM 1.66 0.11 7.10
CHARLES RIV LABS INTL INC CRL 72.01 3.85 5.65
WABASH NATIONAL CORP WNC 11.56 0.59 5.38

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DENNY'S CP DENN View Snapshot Report
HORIZON BANC.. HBNC View Snapshot Report
MELCO CROWN .. MPEL View Snapshot Report

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Earnings and Economic News

Key Earnings Reports For Feb 11, 2016

Economic Event Reported
(+) Treasury bills (3 mth) - Feb 11, 2016 4:15 PM Eastern Time
(+) Federal Funds Rate - Feb 11, 2016 4:15 PM Eastern Time
(+) Treasury notes (10 yr) - Feb 11, 2016 4:15 PM Eastern Time
(+) Initial Claims - Feb 11, 2016 --
(+) Bloomberg Consumer Comfort Index - Feb 11, 2016 --