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Cash Repatriation Holiday and Hesitant Fed Helps Equities Rally


Today's financial recap and tomorrow's financial outlook.

It was another wild one in the financial markets. The S&P 500 (SPX) at one point traded negative in the early morning only to close up by more than 1%. Because of the high sell volumes late yesterday, many market participants expected the negative price action to carry over into today's session.

In the late morning, news reports trickled out that Democratic Senator Barbara Boxer and Republican Rand Paul had proposed new legislation that will allow companies to return overseas earnings to the US at a 6.5% tax rate (compared to the 35% rate currently). If passed will generate substantial new revenue, which could be used to increase spending. Markets reacted very favorably to this development because it will allow companies to return more profits to shareholders and expand growth in the US.

In the afternoon, Democrat Senator Chuck Schumer said that in a meeting with Fed Chair Janet Yellen she told policymakers she has no plans to raise rates immediately. She still thinks there is more room for job creation, which did not warrant an immediate increase in rates. Markets reacted favorably to this news because this phrasing appeared to indicate a longer time until the first hike than a "couple" of meetings.

The SPX settled up 0.95% on the day, and there was broad participation by various sectors of the market. The best performing sector was materials and utilities, even though most hard and soft commodities suffered substantial losses today. For example, silver fell by more than 6% and gold, palladium, and copper were also very weak. US Treasuries sold off slightly, spurred by two Treasury auctions totaling $64 billion in new issues today.

Deckers (DECK) reported earnings after the close and it missed earnings and revenues expectations by a substantial amount. Additionally, it lowered its revenue forecast for the full year to 13.5% growth from 15%, and lowered EPS targets as well. The stock was down 12.4% in post-market trading. On the other side of the ledger, Amazon (AMZN) beat earnings solidly and the stock rose 14.4% in the aftermarket.

Tomorrow's Financial Outlook

It will be a heavy day for economic data tomorrow. First, the employment cost index for the fourth quarter will be reported, and it is likely to show another increase in wages. Second, the advance estimate of fourth quarter GDP will reported with 3.1% quarterly annualized growth expected. Third, the regional Milwaukee and Chicago manufacturing surveys will be released for January with a slight moderation in growth expected from the prior month. Fourth, the final University of Michigan/Reuters consumer confidence index for January will be reported. Lastly, the first FOMC member since the meeting on Wednesday, Boston Fed President Eric Rosengren, will give a speech overnight in South Africa.

Overnight, Japan will release consumer prices, employment, and industrial production data from December. In the morning, Italy will report its unemployment rate, the UK will release consumer credit growth, and the Eurozone advance consumer price index from January will be released. Today, the German index for the same month dropped 1.0% from the prior month, which was worse than the -0.8% expected.

Chevron (CVX), Weyerhaeuser (WY), AbbVie (ABBV), Mattel (MAT), Altria (ALTR), and Mastercard (MA) are scheduled to report earnings tomorrow.

Twitter: @Minyanville

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