Stocks are starting the week with the wind at their back. Earnings season is in full swing and the blue chips continue to report in force. Apple (AAPL), Exxon (XOM), Merck (MRK), Pfizer (PFE), Visa (V) and Chevron (CVX), Twitter (TWTR), LinkedIn (LNKD), Ford (F), United Parcel Service (UPS), Gilead Sciences (GILD), ConocoPhillips (COP) and Bristol-Myers (BMY) are a few of the most widely held names. Apple is the largest component in the Nasdaq, as well as a major holding in many technology ETFs and mutual funds. Apple has beaten estimates by 13.7 percent, 4.10 percent, 8.40 percent and 17.70 percent in the past four quarters. Given Apple’s track record, the Nasdaq hitting a new all-time high last week and technology earnings coming in strong this quarter, expectations for Apple are relatively high. Analysts are looking for earnings per share of $2.27 from the firm.
This week is also significant for economic data as GDP will be reported and a Federal Open Market Committee (FOMC) meeting will occur on Wednesday. Analysts are forecasting first quarter GDP will be around 1.2 percent, but the Atlanta Federal Reserve’s real-time model is predicting 0.1 percent growth as of Friday. There are still two more estimates of first quarter GDP growth coming in May and June because it takes time to collect all the data. Odds are the GDP number this week will be closer to the Atlanta Fed’s prediction.
The Fed meeting this week will be very closely watched. The prediction for the first rate hike has shifted to the second half of the year because the Fed appears to be concerned about weaker than expected first quarter economic data. There’s still a small contingent of analysts who think the Fed will hike in June because the Fed wants to change policy, regardless of the data. This is the last meeting before June, so if the Fed wants to fully squash the idea of a June rate hike, it will do so in the upcoming FOMC statement. Given that GDP data is likely to come in below forecasts, the worst case scenario for stocks would be if GDP misses and the Fed signals rate hikes are imminent. This is unlikely to occur.
Oil prices open the week at their highest level in 2015. That’s good news for the energy sector and with several firms reporting over the coming day, energy equities could rally. The U.S. dollar opens the week close to its highs. The 97 level is a short-term support line for the U.S. Dollar Index; it closed at 97.10 on Friday. A break lower is clearly the larger risk in the short-term, with the high around 100 serving as overhead resistance. Interest rates have a much wider range before they break a high or low. The 10-year treasury yield was 1.93 percent in early trading on Monday, halfway between the low set at the end of January, and the high set in March.