Market Preview: Market Settles But Closes Heading Lower, Earnings from Netflix, CSX and Alcoa

Market participants breathed a sigh of relief Monday as markets settled down from the extreme volatility of last week. Markets traded in a fairly narrow range, and then ended on a sour note, falling into the close. Nasdaq was again the most heavily hit, falling almost one percent. Traders weren’t taking the decrease in volatility as an all clear sign yet, as tensions remain high on several fronts, including interest rates and international politics. Investors in the technology sector are keeping an eye on rising tensions between the U.S. and Saudi Arabia over the disappearance of journalist Jamal Khashoggi. Saudi Arabia is a major investor in large technology companies, and some fear an escalation of tensions could impact some large U.S. tech companies. Sears (SHLD) declaration of bankruptcy Monday morning was almost a footnote for the market, as the company’s stock had been in a multi-year decline, and the bankruptcy had been expected for several weeks.   

Earnings season kicks off in earnest Tuesday as companies such as Johnson & Johnson (JNJ), UnitedHealth Group (UNH), Netflix (NFLX) and CSX Corp. (CSX) report to investors. Netflix is the first FAANG stock to report after the market volatility of last week. The company missed subscriber estimates last quarter, so investors will be wary of any missteps in this quarter’s report. Any negative commentary may bleed over into the tech sector in general. Analysts aren’t expecting any surprises out of J&J, but that may be just what the doctor ordered. While health care has been red hot on the year, the big drug company is actually down slightly. Investors may want to keep an eye on the stock after earnings to see if it starts participating in the rotation out of growth and into defensive names.

Tuesday’s economic numbers include Redbook retail data, industrial production data, the Housing Market Index, and the Labor Department’s Job Openings and Labor Turnover numbers, or JOLTS. The job openings number for August is expected to hold steady at 6.9 million after hitting a record in July. Wednesday morning the focus will be on housing before turning back to interest rates in the afternoon as the Fed meeting minutes are released. Consensus opinion is that housing starts will continue to fall when the number is released Wednesday, but permits for new building are expected to rise. Mortgage applications are also expected to decline almost two percent as both new and refi applications are both expected to drop for the month of September.

Earnings announcements from U.S. Bancorp (USB), Kinder Morgan (KMI) and Alcoa (AA) will take center stage Wednesday. Kinder Morgan had the advantage of rising oil prices, as well as closing a deal with the Canadian government on the sale of its Trans Mountain Pipeline, in the third quarter. Analysts will be eager to hear whether the company will be returning additional capital to shareholders or advancing other potential growth projects. Alcoa has been in a steady downtrend after hitting an April high of just over $62. Now at $35, investors will be looking for signs of a turnaround from the aluminum provider. More importantly, the company may have valuable insights into whether the overall economy may already be slowing in anticipation of higher interest rates.