Market Preview: Interest Rates Spook Markets, Earnings from the Big Banks Next Friday


One word could be used to describe the performance of the equity markets on Friday: bonds. Rising interest rates, combined with the lowest unemployment rate since the ‘60s, spooked markets. Both the DJIA (-.68%) and Nasdaq (-1.16%)  fell, rallying off of lows into the close. Traders worry that the Feds balancing act may prove difficult as the economy either picks up steam too quickly, or rising rates put a brake on what many believe are the beginnings of a normalization of the economy. The fear of deteriorating relations with China, both political and economic, meant there was no good news on the tariff front either. Deals with both Mexico and Canada have helped keep the rally in motion the past few weeks. China trade issues will likely take a more prominent role Monday as bond markets are closed for Columbus Day.

Given the holiday, there are no earnings reports on Monday, but earnings start rolling in for the second week of October on Tuesday. Helen of Troy (HELE) and AZZ, Inc. (AZZ) both report Tuesday morning. Helen of Troy is expected to show a revenue decline of just over 7% from the previous year’s quarter, but earnings are expected to tick up slightly. The household and personal goods provider is up over 30% in 2018. AZZ is expected to report a 40% increase in year-over-year earnings. The stock had been performing well this year until the last month in which it has fallen almost 10%. Rising interest rates may be spooking investors in the energy and metal coatings industrial company.

Monday we’ll see the release of the TD Ameritrade investor sentiment index. Analysts will be interested to see if rising rates have begun to show up in the index which measures retail investor exposure to the equity markets. Tuesday analysts will parse the small business optimism numbers as well as Redbook retail data. Wednesday will see investors turn back to talk of interest rates as mortgage application and the Atlanta Fed business inflation expectation numbers are released.  Mortgage applications are expected to be flat. CPI data and weekly jobless claims will be released on Thursday. CPI is expected to move up .2% month-over-month. We’ll close out next week with import-export prices and consumer sentiment numbers on Friday.

Fastenal (FAST) reports earnings on Wednesday, along with VOXX International (VOXX) and Saratoga Investment Corp. (SAR). Thursday Delta Airlines (DAL) and Walgreens Boots Alliance (WAL) take the earnings spotlight. Walgreens recently announced a $34.5 million fine from the SEC for misleading investors in the midst of its merger with Boots Alliance in 2013-14. Friday will be the most anticipated earnings day next week. Several big banks, including Citibank (C), Wells Fargo (WFC), and JP Morgan (JPM) are among those reporting. Analysts will be keen to hear the banks’ take on rising rates and how they will impact future earnings. All three banks have shown positive price action the last few days.   

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