Market participants expecting a kinder, gentler Fed were sorely disappointed Wednesday. After the Fed hiked rates .25%, Chairman Powell indicated the Fed sees a strong economy, strong hiring, and still sees two interest rate hikes in 2019. Though expected, many analysts and market pundits had encouraged the Fed not to raise rates this week. And, to signal there would be no more rate hikes in 2019, at least until it became clearer how the economy was performing. Investors assumed the Fed had received the message Wednesday as the DJIA was up close to 400 points when the 2pm announcement was made. With the S&P 500 and Nasdaq both showing similar percentage gains, markets quickly sold off to flat before a brief pause, and then went into another nosedive. The DJIA finished off 1.49%, sending it into negative territory for the year. The Nasdaq closed off 2.17%, now down 3.67% in 2018. The S&P 500 clocked in down 1.54%, and is now off just over 6% on the year. The combination of tax loss selling, and most traders wrapping up their books this week, will likely lead to a continued volatile close to 2018.
Nike (NKE), Walgreens Boots Alliance (WBA) and Carnival Corp. (CCL) report earnings on Thursday. Nike fell with the rest of the market Wednesday, but is still up slightly on the year. The company is expected to post good numbers Thursday, as analysts expect positive momentum in sales and margins in the quarter. But, one question mark that may tarnish expectations is what impact Chinese tariffs had on the sports apparel company. The stock of Walgreens has been hit especially hard in the past few weeks. Investors are concerned Amazon’s (AMZN) entry into the pharmacy business could negatively impact earnings in the sector. The company would be well served to introduce some contingency plans to analysts on the earnings call as to how it would compete with the largest online retailer in the U.S.
Thursday’s economic calendar includes jobless claims, the Philadelphia Fed business outlook, and leading indicators. Jobless claims are expected to nudge higher this week after falling unexpectedly to an historic low of 206k last week. Analysts are also expecting a bounce back in the Philly Fed numbers to 16.9 from an unexpected decline to 12.9 in November. The Fed balance sheet, which Chairman Powell indicated will continue to be used for quantitative tightening, will be released after the close Thursday. Friday, the winter solstice, is a quadruple witching expiration. Index futures, index options, stock options, and single stock futures all expire, usually resulting in increased volatility in the market. Durable goods, GDP, and corporate profits will all be released before the market opens Friday. Personal income and outlays, consumer sentiment, and the Kansas City Fed Manufacturing numbers will also be released Friday morning. Both GDP and consumer spending are expected to maintain their current momentum, and come in at 3.5% and 3.6% respectively. After tax corporate profits are projected to average 5.9% on a year-over-year basis.
Carmax (KMX) wraps up the final week before the Christmas holiday when it reports earnings on Friday. Although the stock traded above $80 in 2018, it is now almost back to its lows for the year set in April, trading just over $57. Earnings for the quarter are expected to come in at $1.01 per share.
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