The Middle East, Economic Data And Earnings

Key Takeaways

• Concerns Over Middle East Continue
• Netflix and Tesla Headline Earnings For The Week
• Rite Aid Files For Bankruptcy

Markets were mixed last week with the S&P 500 posting marginal gains while the Nasdaq Composite was down less than one percent. However, we did see a big spike in volatility on Friday with the VIX up over 10% on fears over the situation in the Middle East. Those fears also helped drive the price of oil higher by 6% and pushed gold prices higher by 5% for the week. As we kick off this week, there are any number of potential pockets of turbulence from the geopolitical situation; domestic politics, where we still have no Speaker of the House; a trove of economic data; and the ramping up of earnings season.

On the geopolitical front, the situation in Israel continues to remain fluid with a ground invasion of Gaza expected at any moment. While concerns over contagion have sent oil prices higher, there is renewed tension between the U.S. and China with respect to computer chips. The Biden Administration is considering additional restrictions on advanced semiconductors, adding to existing restrictions.

Last week, Microsoft
MSFT
and Activision
ATVI
Blizzard passed their final regulatory hurdle, allowing the companies to complete their merger. As a result, Activision Blizzard has been replaced in the S&P 500 by Lululemon. In premarket activity, shares of Lulu are higher by 5%. Speaking of the S&P 500, third quarter earnings will kick off in earnest this week. The highlights of the week include Goldman Sachs before the open tomorrow, then on Wednesday after the close, we’ll hear from both Netflix
NFLX
and Tesla
TSLA
.

Before the rush of earnings begins, we’ve already heard this morning from Pfizer
PFE
who cut both their revenue and earnings forecast. Shares of Pfizer are down fractionally in premarket. That comes after Rite Aid
RAD
filed for bankruptcy on Sunday. Rite Aid has been plagued by a combination of debt and lawsuits stemming from the opioid crisis.

Along with the earnings scheduled for this week, investors will be closely watching the tech sector in general. Tech stocks have really carried the market this year and I’ve spoken about the “Magnificent Seven” a number of times. But there are five stocks: Alphabet, Amazon
AMZN
, Apple
AAPL
, Microsoft and Nvidia who account for one-quarter of the S&P 500 market cap. Those five stocks are forecast to have an average third quarter earnings growth of 34%. I’ll be very interested in what these companies ultimately report and have to say looking forward, especially considering the strong U.S. dollar and any headwinds that is creating for international sales. Both Alphabet and Amazon are up over 50% so far this year, while Apple and Microsoft are up just under 40%.

On the economic side of things, we have a bunch of data scheduled for release, especially housing-related. On Wednesday we’ll get the most recent look at Housing Starts, then on Thursday the latest on Existing Home Sales. Before that though, Retail Sales will be released on Tuesday and I’m especially curious to see if consumers have cut back on spending in light of comments from Jamie Dimon last week when he said he’s seeing signs of consumers paying down debt and spending less. Mixed in throughout the week will be a host of Fed officials speaking with Fed Chairman Jerome Powell scheduled to speak on Thursday, midday.

For today, I’m interested to see if volatility contracts some after a large expansion on Friday, I think it may, as some of that on Friday was shorter term to cover the weekend. I think much of that was attributable to concerns over what might develop in the Middle East over the weekend. Therefore, I’ll be watching for signs that fear has subsided with the weekend in the rear view mirror, or if those concerns keep volatility elevated. As always, I would stick with your investing plan and long term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.