After enjoying a nice run higher into the Fourth of July holiday, investors and traders were greeted with a rude awakening by weaker-than-expected employment numbers on Friday. With earnings season kicking off, the market will be looking for signs of strength to support the flagging economy, or potential weaknesses that could signal a pending recession and downturn.
This week, we asked Toni Turner of TrendStar Trading Group what her game plan looks like for this earnings season, and which industry groups might exhibit telltale signs of the market's outlook.
EQ: The June employment numbers came out last Friday and they were pretty disappointing. What was your reaction to these numbers and what does it tell you?
Turner: I was disappointed with these numbers because I truly thought they would be better than they were. We saw the European market weaken on the data when the numbers were reported, and crude extended its losses. So we now go into earnings season on a down note. I took profits on most of my core positions last week and I'm happy I did so. Now, we wait and see, which I typically do during earnings season anyway.
EQ: Earnings season kicked off Monday as Alcoa (AA) reported after the close. Are there any trends or expectations you have for the coming few weeks?
Turner: As far as typical trends go, we usually rise before a holiday, so the market rose nicely as expected before July 4th. When we look at last July, the market did rise into the holiday but then rolled over, before it started back up. We had a relative new high on July 21 of last year, and then the market fell to its severe low in August. Right now, I just see a rocky trend here. We've seen some companies already lower their guidance for the coming quarters. So for this quarter, I see choppiness and mixed results, and for that reason, I think for the most part, I’ll keep my mittens off the keyboard.
EQ: Last week you said you’d be watching the retail industry closely to see how well consumers are holding up. Are there any other sectors that you’re tracking right now?
Turner: There were so many indices and groups--retail being one of them--that have moved up dramatically before the July 4th holiday. The SPDR S&P Retail (XRT) was moved above its 50-day moving average, but we'll need to see if it can hold here with the new jobs numbers in place. The other sectors or industry groups that I'm watching right now are the SPDR S&P Homebuilders (XHB) and iShares Dow Jones US Home Construction (ITB), because those two ETFs are influenced by the consumer because they're homes and durable goods. We've seen these two groups jump higher dramatically in the last two weeks. Conversely, one of the biggest components of the XHB is Home Depot (HD), and it's starting to consolidate here. So I'm watching Home Depot, the XHB and the ITB to see if homebuilders can stay strong. If they can, that will be another indicator that our economy maybe is ready to move forward, and if they can't, then obviously it won't be a good sign. If we have a dip during the next three weeks, we need to remind ourselves that many equities have become overbought. A dip will provide fresh opportunities, so this is a great time to keep plenty of cash on hand, and watch for new prospects to open up.
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