Market Perspective for July 11, 2016

The S&P 500 Index opened at a new all-time high on Monday following last week’s strong economic data.  Positive earnings reports could propel the rally throughout the week.

Japan’s Prime Minister Abe won a supermajority in the upper house of parliament. The victory was seen as an endorsement of the debt financing and debt monetization policies pursued by Abe and the Bank of Japan (“Abenomics”). Investors bid up Japanese stocks and sold the yen in the wake of the vote.

U.S. stocks continued to benefit from last Friday’s better-than-expected jobs report. Homebuilders rallied last week and homebuilder funds are at or near all-time highs. Consumer discretionary also broke out to a new high, and technology is on the cusp of a new all-time high.

The Job Openings and Labor Turnover Survey (JOLTS) will be released on Tuesday.  Analysts expect it will confirm recent strength in the labor market, although the consensus calls for a slight drop from April, to 5.7 million job openings. Updated crude inventory levels, the mortgage purchase applications index and the Federal Reserve Beige Book will all be available on Wednesday.

Inflation and retail sales data, both critical economic indicators, will be released on Friday. Economists forecast the CPI increased 0.3 percent in June, with core CPI up 0.2 percent. Analysts expect a 0.1 percent rise in June retail sales (0.5 percent ex-autos). Industrial production and capacity utilization for June will also be out on Friday and could impact GDP forecasts. Both are expected to show an increase in production.

Alcoa (AA) reported quarterly earnings per share (EPS) of $0.15 on revenues of $5.3 billion on Monday, exceeding expectations of $0.09 EPS on $5.2 billion. Investors will continue to focus on the company’s plan to split into two separate business units.

Several major banks are scheduled to report earnings later in the week. Big banks reported strong lending growth last quarter, despite weak investment and trading activity. Regional banks derive a larger portion of revenue from lending and could enjoy similar second quarter benefits. Analysts expect EPS of $1.44 on revenues of $24.1 billion from JP Morgan Chase on Thursday. Citigroup (C) is expected to deliver EPS of $1.14 on consensus revenues of $17.71 billion, while Wells Fargo (WFC) is expected to report EPS of $1.01 on revenues of $22.21 billion. Two larger regional banks, PNC Financial (PNC) and U.S. Bancorp (USB) are also set to report this week.

Analysts expect EPS of $0.74 on $3.08 billion in sales from Yum Brands (YUM) on Wednesday. Transportation index component, CSX Corp (CSX), will also report on Wednesday; analysts anticipate double-digit declines in earnings and sales from a year ago.

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