Investors look to Fed, earnings for direction next week

Fri Jan 22, 2016 3:31pm EST
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By Chuck Mikolajczak

NEW YORK (Reuters) - Investors hoping equities can sustain their recent bounce next week will carefully watch the U.S. Federal Reserve's mid-week policy meeting for signs the central bank may slow the path of interest rate hikes.

The S&P 500 .SPX has already fallen as much as 9 percent this year, with stocks battered by concerns over China's slowing economy, plunging oil prices and Fed Vice Chairman Stanley Fischer's comments that he expected about four rate hikes this year.

But investors expect the Fed may soften its tone on interest rates when it concludes a two-day meeting on Wednesday, especially after European Central Bank President Mario Draghi on Thursday raised the prospect of policy easing in March.

"The speculation is the message will continue to be dovish from the Federal Reserve and the four rate increases they have been talking about is not realistic, so that is being viewed as a positive" for stocks said Ken Polcari, Director of the NYSE floor division at O’Neil Securities in New York.

Investors will also deal with a flood of corporate earnings reports, with results from big names in a range of sectors that will point to whether the outlook for fourth-quarter earnings was overly pessimistic.

Among the Dow components expected to report are Boeing (BA.N: Quote), McDonald's (MCD.N: Quote), 3M Co (MMM.N: Quote) and United Technologies (UTX.N: Quote). Investors will watch these large multinationals for indications of how the strong U.S. dollar is affecting exports and profit margins.

Also due to report is tech bellwether Apple Inc (AAPL.O: Quote), the biggest U.S. company and the one most widely held by individual investors. It will be closely watched for signs of a decline in iPhone sales after soft sales forecasts from some of its suppliers, which could seal a third straight month of declines for the stock, which has an outsized effect on the broader market.

"We are going to be provided the clearest picture of not just backward looking fourth-quarter earnings, but much, much, much more importantly, guidance," said Peter Kenny, equity market strategist at Kenny & Co LLC, in Denver.   Continued...

Traders work on the floor of the New York Stock Exchange January 22, 2016. REUTERS/Brendan McDermid