Tuesday Look Ahead: JP Morgan, Retail Sales and Bernanke Speaks?
Intel's first quarter earnings blew away even the most optimistic forecasts, and it's now J.P. Morgan Chase's turn to deliver.
J.P. Morgan is viewed as the best of the bunch when it comes to major banks, and its Wednesday morning earnings report will not only set the stage for the financial sector's earnings season, but also jump start a busy trading day.
The big ticket economic report Wednesday is retail sales for March, due at 8:30 a.m. CPI inflation data is also released at 8:30 a.m. and business inventories are at 10 a.ma. The Fed's beige book on the economy is released at 2 p.m.
Fed Chairman Ben Bernanke testifies at 10 a.m. before the Joint Economic Committee on the economic outlook. His appearance was preceded by market rumors Tuesday that he would signal the Fed's move away from its commitment to keep rates low for an "extended period." The Fed declined comment, and the rumor was greeted with skepticism even as it managed to stir up markets.
"I think the marquis event is actually the retail sales number," said Boris Schlossberg of GFT Forex. "The only problem is the market is so primed for a blow out number..Unless we get a really good print, it could be a disappointment. If we do get a really good print, I think it gives dollar yen a little bit of a boost."
Schlossberg, and others, said they are doubtful the Fed chairman would tip the Fed's hand on its rate strategy at a Congressional hearing. "I still think they are far away from tightening. I still think they're waffling about whether we're out of the recession. I think they're going to say the data is showing steady improvement. I don't expect this testimony to be anything but gray with a touch of optimism," he said.
Steve Massocca, managing director at Wedbush Securities, said the stock market's expectations are high for that retail sales number, after last week's surprisingly strong chain store sales reports.
"All these casual dining stocks have gone straight up. The retailers have gone straight up. A disappointing sales number will bite. It better be in line, or we will have problems," said Massocca.
Goldman Sachs senior economist Ed McKelvey said the retail sales number will provide an important read on the consumer and help finalize GDP forecasts for the first quarter. The consensus forecast for retail sales is currently 1.2 percent.
"Right now, we've got 2.5 percent (GDP) for the first quarter. I'm not that uncomfortable with that number. It could even come in a little lower despite all the upside surprises in spending," he said.
McKelvey said he's been surprised by the strength of the consumer. While incomes are not rising, spending has had a surprising pick up. He said one reason, ironically, may be the slowdown in housing.
"Over the last three or four years, households have cut back their investment in housing, either renovation of housing or purchases of houses, and that has freed up more resources to spend within the same income pool," he said, adding it should be a temporary phenomena.
Besides J.P. Morgan, Yum Brands reports after the bell Wednesday. J.P. Morgan is expected to report profits of $0.63 per share on revenues of $25.1 billion. The company holds a web cast for investors at 9 a.m.
The second major earnings of the quarter - Intel - was a positive, but traders still believe the market could sell off into earnings season news. "I think that's largely expected. What might not be expected is I think there will be pockets of numbers that are better than the already raised expectations," said Massocca.
"The technology numbers are too low," he said.
Intel's after hours report sent its stock sharply higher, and that could have a positive spillover effect on other tech Wednesday. Intel profits jumped nearly four-fold and its report blew away estimates on the bottom and top lines.
The company's closely watched gross profit margins jumped to 63.4 percent from 45.3 percent in the same quarter a year earlier. The company reported earnings of $0.43 per share, compared to an expected $0.38, on revenues of $10.3 billion, beating the estimate of $9.84 billion.
The company also raised its forecast for second quarter revenue to $10.2 billion, plus or minus $400 million. Analysts had expected $9.68 billion.
Intel's CEO Paul Otellini said high speed pc chip demand is particularly strong during the company's conference call. The company also said it plans to speed the roll out of two new factories.
Intel CFO Stacy Smith, in an interview with CNBC's Jim Goldman, said the company plans to hire 1,000 to 2,000 workers, its first hires in five years.
Goldman's McKelvey, in an interview earlier this week, said in general, companies have to become comfortable with their ability to forecast before they hire or spend. "The key issue is whether they see conditions in their output market either justifying hiring or capital investment. .. I could see more logic to the equipment side of the capital spending as a way of economizing rather than adding payrolls," he said.
"What we've seen in later business cycles is companies have been taking much more advantage of the temporary work force," he said.
The S&P 500 companies are expected to show some of the best revenue growth in seven quarters this quarter, according to Thomson Reuters data. The question is whether that improvement in business leads to more hiring. Massocca said that would be a double-edged sword, as companies have pumped up their bottom lines by trimming costs and cutting head count.
J.P. Morgan's report is followed by Bank of America's report Friday. Google and AMD report Thursday. GE , parent of CNBC, also reports Friday and its stock has run up ahead of that news. It crossed 19 for the first time since November, 2008.
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