Market Perspective for August 22, 2016

The U.S. Federal Reserve will host its annual Jackson Hole economic symposium in Wyoming this week, highlighted by Fed Chair Janet Yellen’s remarks scheduled for Friday.  This year’s conference theme is titled “Designing Resilient Monetary Policy Frameworks for the Future.” The Jackson Hole symposium has historically revealed a number of key monetary policies.  Former Fed Chairs, Ben Bernanke and Alan Greenspan have both used past symposiums to signal major policy shifts.

Yellen may signal a course change regarding interest rates at this meeting, as her predecessors have done before. Currently, investors are only pricing in a 12 percent chance of a September rate hike, with December odds at 50 percent. The 10-year treasury bond yield has hovered in an ever-tightening range between 1.60 and 1.50 percent, but hawkish statements in Jackson Hole could push it higher.

Flash PMIs for various nations will be out this week. New homes sales for July will be released on Tuesday, followed by existing home sales on Wednesday. Durable goods orders and core capital goods orders for July are due out on Thursday. The latest GDP estimate for the prior quarter will be out on Friday. Economists expect a growth rate revision of 1.2 percent to 1.1 percent.

The most recent University of Michigan Consumer Confidence figures and the Advance Goods Trade Balance will also be released on Friday. Economists expect a $63 billion trade deficit. Currently, the Atlanta Federal Reserve’s GDP Now Model predicts GDP growth will exceed 3.5 percent in the third quarter.

Though 95 percent of the S&P 500 have reported, the retail sector remains in the spotlight. Big box consumer electronics giant Best Buy (BBY) will report on Tuesday. The company is expected to post year-over-year declines in earnings and revenues as it continues to face pressure from online retailers. Fashion retailer Express, Inc. (EXPR) will report on Wednesday, while Dollar General (DG) and Dollar Tree (DLTR) are scheduled to report Thursday. While DG marginally missed estimates last quarter, analysts expect better results due to increased same-store sales. Analysts believe DLTR will benefit from its acquisition of Family Dollar, forecasting positive earnings and revenue growth. Tiffany (TIF) is expected to post a slight increase in earnings and revenue over last quarter on Thursday as well. In addition to retail data, technology stalwart Hewlett-Packard (HPQ) will also report this week.

Crude oil prices topped out at $49 last week. After bottoming at $39 a barrel on August 2, West Texas Intermediate Crude advanced 25 percent over 10 of the next 13 trading days. Sentiment shifted again on Monday as oil slid to $47. SPDR Energy (XLE) also dipped over 1 percent in Monday trading.

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