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Hillary Clinton and Donald Trump were the front-runners going into the Iowa caucuses. Investors are looking for a narrowing of the dozen-candidate Republican field, and confirmation of whether Trump can muster the votes. In the Democratic Party, they are watching to see if Sen. Bernie Sanders is a significant challenge for Clinton.
Besides politics, traders will be watching earnings and car sales, which are expected to come in at a 17.3 million annualized selling rate in January. Exxon Mobil and BP report ahead of the opening bell.
Stocks could also feel the positive effect of Alphabet's earnings beat after the close Monday. The holding company for Google reported a slight gain in profit, but its revenue jumped 18 percent to $21.3 billion. Its stock rose more than 5 percent in late trading. Alphabet, previously named Google, is one of the FANG stocks. FANG was a top market performer last year and included Facebook, Amazon.com and Netflix.
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"The FANG stocks and the energy stocks, on the other hand, are probably the ones people are scrutinizing most," said Emanuel. "What we are hoping for is an investor reaction to the energy names that report (Tuesday) and the rest of the week, to be unlike the Groundhog Day moves we've been experiencing for the last year and a half in the energy patch. Given the potential for the oil price itself to be forming a bottom, we will be especially vigilant of the energy names to trade well post what once again will be soft earnings announcements."
Emanuel said the options market shows investors are positioned for a high amount of volatility around energy earnings reports.
Besides energy, other companies reporting ahead of the opening bell Tuesday are Pfizer, LVMH, UBS, UPS, Archer Daniels Midland, Royal Caribbean, Sirius XM Radio, Church & Dwight, Dow Chemical, and Michael Kors. Gilead Sciences, Yahoo, Chipotle Mexican, Match Group, Equity Residential and IAC/InterActive report after the market close.