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Negative Headwinds from Currency and Energy Rock Stocks


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

It was a rough open to trading today as a flurry of earnings reports last night and this morning sent a shock wave across investors' mindsets. For the fourth quarter, companies began reporting substantially larger-than-expected drawdowns to revenues and profits due to the sharp increase in the US dollar. Additionally, in some cases, the drop in oil prices affect on energy producers and their associated companies was having a larger net negative effect on the economy.

Companies that reported in the last 24 hours included Caterpillar (CAT), United Technologies (UTX), Microsoft (MSFT), DuPont (DD), Procter & Gamble (PG), Bristol Myers Squibb (BMY), 3M (MMM), and Freeport-McMoran (FCX). Microsoft fell more than 10% at one point as currencies dropped revenue by 4% and license sales in China were down. Caterpillar reduced its annual earnings forecast for 2015 by more than 20% compared to estimates, which affected peripheral companies like Cummins (CMI) and Eaton Chemical (ETN). Freeport-McMoran severely cut its capital expenditures plans, by $2 billion, for next year due to the drop in commodity prices recently.

In the pre-market, S&P 500 (SPX) futures fell as much as 25 points before equity trading even opened. The selling deepened in the first hour as the SPX traded down as much as 2%. The Dow Jones Industrial (INDU) was hit the worst as many companies that make up the index reported poor earnings today. It fell more than 2% and closed down 1.65%. Late selling pushed the Nasdaq-100 (NDX) down 2.58% due to the large drop in Microsoft.

After the close, Apple (AAPL) reported earnings and blew away expectations. Earnings-per-share for the current quarter of $3.06 topped estimates of $2.60 and revenues of $74.6 billion exceeded the $67.52 billion expected. The major contributor behind the beat was substantial iPhone sales of 74.47 million phones, greater than the 64.9 million expected thanks to a doubling of Chinese sales. The company noted that it is facing greater than currency headwinds and that creates problems for guidance on the rest of the year, which was dead inline with estimates. The stock, which had closed down 3.5%, rose 6% in post-market trading.

Tomorrow's Financial Outlook

The main event tomorrow that all market participants have been waiting for is the FOMC meeting at 2pm ET in the afternoon. Other central banks such as the ECB, Bank of Canada, Bank of England, and Riksbank have all made negative comments about the drop in energy prices and how it has affected their respective economies. Investors now think that the US Fed will make similar comments. However, it is possible that the Fed chooses to not acknowledge the downside economic risks, which would be viewed negatively by the economy. There are no other major events scheduled for tomorrow.

Overnight, Australia will report fourth quarter consumer prices. Similar to its Antipodean neighbor, prices are expected to fall to a multi-year low at 1.8% year-on-year, as well as for the trimmed mean measures. The Australian interest rate curve is currently priced for a rate cut of at least 50bps in the near future. The next meeting by the Reserve Bank of Australia (RBA) is on February 2. Also scheduled to be reported in the morning is German GfK consumer confidence.

International Paper (IP), Biogen (BIB), St Jude Medical (STJ), Boeing (BA), General Dynamics (GD), Cullen Frost Bankers (CFR), Qualcomm (QCOM), Citrix Systems (CTXS), Facebook (FB), Tractor Supply (TSCO), Las Vegas Sands (LVS), Steel Dynamics (STLD), Progressive (PGR).

Twitter: @Minyanville

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No positions in stocks mentioned.

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