Weekly Economic Indicators: Seeking Earnings Rally

The schedule of economic releases for the week of January 14th is as follows:

  • Monday:  Ben Bernanke, Dennis Lockhart, and John Williams speak
  • Tuesday:  ICSC-Goldman Store Sales, Producer Price Index, Retail Sales, Empire State Mfg Survey, Business Inventories, Eric Rosengren, Narayana Kocherlakota, and Charles Plosser speak
  • Wednesday:  MBA Purchase Applications, Consumer Price Index, Industrial Production, Housing Market Index, Beige Book, Richard Fisher and Narayana Kocherlakota speak   
  • Thursday:  Housing Starts, Jobless Claims, Philadelphia Fed Survey, and Fed Balance Sheet, and Dennis Lockhart speak
  • Friday:  Consumer Sentiment

I spoke with Peter Costa, Trader and President of Empire Executions, and CNBC Market Commentator, about the overall market, GDP, housing data, 4th quarter earnings, and the municipal bond market.

Overall Market View

Costa feels the equity markets will trade in a narrow range for a while, at the top of a 5 year high. It might swing 100 points in either direction, depending on the news from Washington, but long term, these events have been factored into the markets already. As the US economy slowly starts to grow again, our financial markets will go higher, and global markets will follow suit. Separately, he cautioned, the European sovereign debt crisis is still an overhang, as there are 27 nations who can’t agree on a common solution. The crisis has been overshadowed by the fiscal cliff and the debt ceiling vote, which Costa says has been a blessing for the Europeans, allowing them to buy time for the moment. “Investors have not been beating the pavements, demanding they want out of euro bonds, their focus has shifted to this side of the pond.”

4th Quarter Earnings

The final quarter earnings for 2012 gets into full swing this week, and Costa believes the markets will turn their attention to companies and what impact Hurricane Sandy and the political crisis in Washington had on their businesses. He believes earnings will come in a little better than expected, as expectations have come down, which will help the equity markets in the short term. He added companies are still doing better in this competitive environment, and corporate profits will be surprisingly better as the economy keeps chugging along.

Housing Market

Costa said, “the housing market is for real” citing improvements in new homes and existing homes which is building momentum as the recovery picks up.  This week housing starts, housing market index, and MBA purchase applications will all be out, and Costa will be watching to see if the trend continues. Interest rates are still low, new homes are still being built, and prices are becoming more stable in the riskier markets. However, he still thinks a full recovery in the housing market will not be realized until consumer confidence improves.

Muni Bonds

Despite what Meredith Whitney, founder and Chief Executive Officer of the Meredith Whitney Advisory Group, said about the end for muni bonds being near, Costa pointed out only a few municipalities have actually defaulted on their obligations. He thinks muni bonds still have another year to go.  It’s a tax free, guaranteed return and the percentage of people who own muni bonds are less than those owning equities.

Buzz on the Trading Floor

Traders are hopeful that, as the economy improves, volumes will return to the trading floor. He believes regulators, including the SEC, will have to address market structure for the equity market. Costa is a long term investor and predicts the market is on an upward trend and he wants the small investor to participate in this rally.

Costa’s Gripe

He would like to see a resolution to the debt ceiling vote. Politicians need to work on behalf of the country and not their individual interest.  However, he did not care about the fiscal cliff issue a few weeks ago and he is not worried about the debt ceiling vote, as it is a political game being played in Washington.