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Earnings and Claims Expected as Investors Consider Longer Term Low Rate Environment

A major rush of earnings reports and weekly jobless claims will occupy markets Thursday, as investors continue to ponder what it means to see an even more dovish Fed.

AP

Earnings are expected form AT&T , Caterpillar and 3M , among others, and jobless claims are reported at 8:30 a.m. EST, as are durable goods. Focus will also continue to be on Europe, where Greece’s debt restructuring is still unresolved and Portugal’s credit default swaps continue to widen, signaling concerns it may need another bailout.

The Fed, broadcasting its new communications policy for weeks now, managed to squeak out a surprise for markets Wednesday when it said it sees a near zero Fed funds rate through the end of 2014. The Fed had previously forecast a mid-2013 date, and many in the market had expected a mid-2014 date for the Fed’s first tightening round.

Stocks rallied, with the Dow gaining more than 130 points after the news, to close at 12,756, up 81 on the day. The Dow is now just 52 points from its April 29, 2011 high, its highest close since May, 2008. The S&P 500 finished 11 points higher at 1,326. The dollar lost a half percent against the euro, and gold gained 2.1 percent, finishing at $1,699.80 per ounce.

Fed Chairman Ben Bernanke held his regular quarterly press briefing after the Fed’s releases. He said the economy has made progress, but not enough. In response to a question, he said the Fed could consider another round of quantitative easing if Europe or other issues threaten the economy.

For the first time, the Fed, in a move to be more transparent, released its members’ forecasts for the Fed funds rate and when they expect the first rate hike.

“It does raise the odds of QE3 a little bit,” said John Canally, economist and investment strategist with LPL Financial. Canally called the FOMC meeting “game changing,” similar to when the Fed first announced quantitative easing in 2009, and again in 2010, when it signaled a second round of easing.

If the Fed is going to launch QE again, it is expected it would buy hundreds of billions of dollars of mortgage securities, expanding its balance sheet once more.

Canally said the Fed’s now even longer time frame for extremely low rates may also be a response to the potential for fiscal tightening that could occur if Washington makes cuts to address federal budget deficits. The Fed also trimmed its expectations for GDP growth through 2014.

Canally said it’s not clear the Fed will ease, and that it will wait to see what the economy does first. But that doesn’t mean that stocks and commodities won’t move higher on the promise of more easing.

Stocks, however, could move in “fits and starts.” The corporate earnings season has signaled a slowdown in profit growth, and that could start to take a toll on the market. “I don’t think earnings news has sunk in yet. It may take a while, maybe until next quarter,” he said.

“It’s earnings, Europe and the Fed that are going to fight it out. In a typical election year, you don’t get that far from the zero line. You (stocks) can be up five percent or down five percent, and then up five percent. It doesn’t break down to either side until the market gets to where it thinks it sees the outcome of the election,” he said. “It almost doesn’t matter who wins. That (the removal of uncertainty) could trigger a rally.”

When stocks moved higher Wednesday, investors flocked to dividend paying stocks as they searched for yield in a longer term, low rate environment. High-yielding stocks could stay in focus Thursday. Utilities turned positive on the day and finished as the best sector, with a 1.64 percent gain Wednesday.

If tech favorite Apple were an industry sector, it would have been the day’s winner. Riding its surprisingly strong earnings report, Apple closed at a record high of $446.66, up 6.2 percent. It added $24.3 billion in market cap in Wednesday trading.

Thursday’s weekly jobless claims will be important for markets, after coming in at a surprisingly low 352,000 last week.

J.P. Morgan economist Michael Feroli said he thinks the number could move higher again. “We think there was some distortions related to the holidays. We’re looking for 380,000, a little above consensus,” he said.

Other data Thursday includes leading indicators and new home sales at 10 a.m. and the Kansas City Fed survey at 11 a.m. There is also a 7-year note auction at 1 p.m.

Companies reporting earnings before the market open include Nokia, Bristol-Myers Squibb, United Continental, Jet Blue, Under Armour, Potash, Lockheed-Martin, Raytheon, Time Warner Cable, and Sherwin-Williams. Amgen, Starbucks, Juniper Networks, Motorola Mobility, KLA Tencor, Eastman Chemical and Chubb report after the closing bell.

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EME
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BMY
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EMN
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JBLU
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JNPR
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KLAC
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LMT
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NOK
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POT
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RTN
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SBUX
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SHW
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TWC
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UA
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UAL
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Natural gas inventory data is reported at 10:30 a.m. Natural gas, at a 10-year low last week, has been shooting higher this week as multiple companies announced plans to scale back production.

Follow Patti Domm on Twitter: @pattidomm

Disclaimer

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC's Senior Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.