Market Preview: Chinese Weakness Hits Earnings

Markets declined Monday, after lower-than-expected Caterpillar (CAT) earnings and an Nvidia (NVDA) warning, both due to weakness in China, began to bring the global economic slowdown into focus. Whirlpool (WHR), reporting after the close, also blamed lowered 2019 guidance on weakness mainly in the Chinese market. A new round of trade talks between the U.S and China are slated to begin later this week. The question is whether the downward momentum in the Chinese economy will continue despite an agreement, or whether stimulus by the Chinese government, combined with a trade agreement, will be enough to turn the flailing economy around.

Pfizer (PFE), Verizon (VZ), and 3M (MMM) all report earnings Tuesday morning. Verizon has rallied nicely after the recent dip in the market. Analysts will be looking for updates on spend to build out the 5G network, and how the company sees that investment outflow in 2019. Tuesday evening all eyes will be on Apple (AAPL) when the company report earnings after the close. Investors will want an update on the situation in China, and whether prices will be cut for the newest iPhones. Some analysts see no way around a price cut, whether a trade deal is reached with China or not. Also reporting after the close are Stryker (SYK) and Ebay (EBAY).

Tuesday is the beginning of a Federal Open Market Committee (FOMC) meeting which will conclude with an interest rate announcement Wednesday at 2 pm. The Fed is not expected to raise rates at this meeting. International trade in goods and retail and wholesale inventories will also be released Tuesday morning, assuming the numbers have been compiled given the recently ended government shutdown. Analysts will also be focusing on the S&P Corelogic Case-Schiller Home Price Index which is predicted to rise .3% month-over-month. Consumer confidence will also be released.

GDP, scheduled for release Wednesday, will be delayed due to the government shutdown. The current projection is for a 2.6% increase for Q4. The ADP employment report and MBA mortgage applications are also scheduled for release Wednesday morning. Pending home sales are expected to rise .1% for December when the data is released Wednesday. Following the Fed announcement, Chairman Powell is scheduled to give a press conference at 2:30 pm. This will be a closely monitored event, as the Chairman has greatly impacted rate perceptions in his appearances and speeches the past few months.

Wednesday, before the open, we’ll see earnings reports from Alibaba (BABA), Boeing (BA) and McDonald’s (MCD). Many, fearing a slowing in airline traffic, are looking to BA for any signs of cracks in the earnings report. China will also loom large when the airplane builder reports. Alibaba should provide some insight into the Chinese consumer, and how rapidly the Chinese economy is cooling. They may even shed some light on how stimulus efforts, undertaken by the Chinese government, are working.

After the close Wednesday analysts will dissect earnings from Microsoft (MSFT), Facebook (FB) and PayPal (PYPL). While turning up from a short term bottom, Microsoft has not yet been able to retake highs it achieved near the end of 2018. Facebook continues to come under pressure on its advertising practices. Investors will be listening for some clarity on those practices, as CEO Mark Zuckerberg has recently taken to the media to defend the company’s advertising format.