Market Insider

Earnings deluge continues as markets await jobs report

A trader works on the floor of the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty Images

Markets will be setting up for Friday's jobs report Thursday as investors await another batch of earnings reports, including .

Traders are looking for a stronger than currently forecast showing for January employment, after ADP Wednesday reported a stunning 246,000 private sector payrolls for January. Economists currently expect 175,000 payrolls in the government report, but that number could rise ahead of the Friday report.

Bond traders were disappointed Wednesday, after the postmeeting statement, leaving the door open for hikes this year but with no sense of timing. Some had expected the Fed to upgrade the economy and make such hawkish statements that the March meeting would come into play, for the next rate hike. The market currently expects the next hike in June and gives about 20 percent odds to a March hike.

Stocks closed mostly higher with the up 26 at 19,890 and the S&P 500 up less than a point at 2,279. jumped 6 percent after its earnings, and helped push the Nasdaq up 27 to 5,642. was higher in the after-hours, up about 1 percent

On Wednesday, Treasury yields, especially in the Fed sensitive two-year, ran up ahead of the Fed's 2 p.m. ET statement. But after the Fed upgraded its view of the economy without sounding particularly hawkish, the market settled back and the two-year was yielding 1.21 percent late in the day.

"You really did see the market pretty much retrace the front end of the rates curve of what was priced in after that ADP report. Maybe they were thinking the Fed would trust ADP as a reliable indicator of underlying economic growth and maybe come out and be a little bit more hawkish. The Fed clearly chose not to do that and not to provide a signal for March. I think some people that were playing for that were a little disappointed," said Mark Cabana, head U.S. short rates strategy at Bank of America Merrill Lynch.

Cabana said the markets will be very focused on the jobs report but also other data. Thursday reports include jobless claims and productivity and costs, both at 8:30 a.m. ET.

"In terms of what's known on the calendar, the other thing that will be quite meaningful is [Fed Chair Janet] Yellen's [congressional] testimony and the Fed minutes the week after that. Outside of that the thing the market is going to be quite focused on is political developments in the near term and how likely fiscal stimulus will be," Cabana said. Yellen gives her semiannual testimony on the economy before Congress on Feb. 15.

Cabana said if the Fed had wanted the market to look to a March hike it would have handled its statement differently. Currently, the Fed is forecasting three rate hikes this year, but many in the market expect just two.

"If they were unhappy with where the market was priced for March right now, they could have chosen to adjust their tone a little bit, but given they decided not to, that indicates they are pretty comfortable given where the markets are for March. Let's see what happens Friday. If the data is really strong, that could convince the Fed to put March in play," he said.

Of the S&P 500 companies reporting so far, 66 percent have beaten earnings estimates and 48 percent beat revenue forecasts, according to Thomson Reuters. Earnings are expected to rise about 7.5 percent this quarter, based on companies that have reported and forecasts for others.

"Numbers have been very good. Corporate America has great profitability so the numbers are justifying this valuation," said Steve Massocca, managing director at Wedbush Securities. "I'm not saying stocks are cheap. But they're not super-expensive."

Stocks were shaken earlier in the week after the Trump administration's travel ban on seven countries was met with outcry from corporate America and some members of Congress. "For all his bluster and ridiculous behavior and thin-skinnedness, the actual things Trump has done and the people he's appointed and the decisions he's made, except for the [travel] ban … in terms of steering the state, are pretty good," said Massocca.

Stocks have risen on the prospect of fiscal stimulus and tax cuts, and traders get concerned when the talk in Washington turns to trade and tariffs.

"If we get true protectionism, we get tariffs, all that's bad news. That's not good economics. Some of the stuff they're doing is what every other country does — taxing imports but not taxing exports. That makes sense," Massocca said.

Patrick Kernan, partner in Cardinal Capital Management, said there was an interesting short-term bet placed late Wednesday afternoon against the market in S&P puts that expire on Monday. "For that trade to break even, we have to drop over 1.5 percent between now and Monday's close," said Kernan.

"It could be somebody who has a lot of risk exposure for some other trade, or they're taking a shot," potentially around some event, like the jobs report, he said.

Earnings expected Thursday include Delphi Automotive, Merck, Deutsche Bank, Estee Lauder, Boston Scientific, ConocoPhillips, AstraZeneca, Autoliv, CME and Ralph Lauren ahead of the opening bell. Besides Amazon, Amgen, Visa, Chipotle Mexican Grill, GoPro and FireEye report after the close.