A French connection, the state of Amazon and GDP

24-04-2017

A French connection, the state of Amazon and GDP

Good morning. Good markets. Welcome back to the week ahead on Wall Street and a look at what investors need to know.

We're coming down the home stretch of April and trying to save this month from being a real drag. Major indexes are hovering around nowhere land, with the Dow down a bit, the S&P 500 up just a tad, and the Nasdaq tech barometer the best of the bunch. Though the month's getting a little long in the tooth, there's still time for some market-moving news in the week before us.

Another election

There's been no shortage of political intrigue around the world when it comes to politics, and this week will be heavily influenced by yet another big race in Europe. French voters went to the polls Sunday to elect a new president, and the results could be a huge deal for global financial markets Monday and through the week. What we know so far: Establishment candidate Emmanuel Macron and maverick far-right standard-bearer Marine Le Pen will face off in the final round May 7. Why it matters: A Macron victory means the status quo prevails not only in France but also the European Union. A Le Pen triumph, on the other hand, means pretty much anything is in play, including a Frexit. Why you should care: The EU battled through Brexit with few tangible negative outcomes so far. But how many shocks can the region stand? Investors should be watching this race closely and preparing for necessary adjustments in strategy.

The profit picture

So far, so (pretty) good as far as company earnings go. Except for a few high-profile disappointments (we're looking at you, Goldman Sachs and IBM), about three-quarters of the companies that have reported so far have beaten Wall Street expectations. Historically speaking, that's even better than usual.

So, now what?

Well, the week ahead is one of the busiest we've seen in a while for corporate profit reports. In all, there are 180 companies reporting, which ties the busiest week in at least five years. The companies on tap represent the heart and soul of corporate America: Virtually every tech titan you can think of, from Amazon to Twitter; energy giants like ExxonMobil; big consumer companies including McDonald's, and industrial titan Caterpillar and many others, all report this week. You just can't get any better of a look into where companies stand both on how the year started and what to expect ahead. Why this matters: Because the solid earnings reports thus have given the stock market at least a little boost, with the S&P 500 approaching a 1-percent gain last week and companies in the index on track to post profits of more than 9 percent for the quarter. More solid reports, coupled with bright outlooks, could bring more market momentum.

Slow going

The most important economic data point of the week probably will be Friday's initial take on first-quarter GDP. Not much is expected — the first three months likely grew at just a 1 percent pace, according to the CNBC Rapid Update tracker. However, the Atlanta Fed thinks the number will be even worse, at just a 0.5 percent pace. Two things to keep in mind: First, this is a backwards-looking number. The first quarter is history, and for much of the recovery, years have started off slowly then accelerated later. Second, the market already knows this is going to be an unimpressive number. So if it beats the really low expectations, it would come as a pleasant surprise and serve as a catalyst for market gains. As folks in the trading pits say, the potential surprise is all on the upside. The other big news will be durable goods and pending home sales numbers on Thursday, though neither is usually a big market mover.

Wild cards

Besides the economy and earnings, the other big influencing factor these days is politics. The Trump administration has a busy week ahead, with two potentially interesting events happening late in the week. On Thursday, there's a House Ways and Means Oversight subcommittee meeting to discuss taxes. Supporters of the border adjustment tax that would exempt imports and tax imports more heavily are expected to be in attendance. Also, Friday at midnight is the deadline for Congress to pass a continuing resolution to fund the government. A lack of action might not be greeted well on Wall Street.

And, finally...

Yes, it may be a way too early look ahead to mid-2018, but the strategists over at Citigroup have taken a shot. In a note released Friday, chief U.S. equity strategist Tobias Levkovich said his team is pretty bullish on the next year or so. Citi has established a 2560 price target for the S&P 500, implying gains of about 9 percent from here. That's not all. Levkovich said that price target doesn't even include the benefits of tax reform measures that President Donald Trump is pushing. "Hence," Levkovich wrote in a note to clients, "there could be further upside to the market."