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Here’s your Investing Action Plan for Wednesday: what you need to know as an investor for the coming day.
XAutoplay: On | OffFederal Reserve Chair Janet Yellen’s semiannual monetary policy testimony to Congress is expected to hit the wires at 8:30 a.m. ET. Hints about future Fed policy action could move markets, especially banks such as JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC) and Bank of America (BAC) . JPMorgan Chase, Citigroup and Wells Fargo report earnings on Friday, with Bank of America next week. Wells and BofA also are near buy points.
The key watchwords will be overshooting full employment and an “idiosyncratic” softening of inflation. At the moment, partly because of the disinflationary trend of recent months, there’s a disconnect between the Fed’s hawkish signal of four rate hikes over the next 18 months and market pricing for just one hike (in December) through mid-2018, according to CME Group’s FedWatch tool.
Treasury yields could rise on Yellen’s testimony if she stresses concern about the unemployment rate falling substantially below a level consistent with stable inflation, while dismissing the recent softer trend in inflation as an outlier tied to big one-time adjustments in prices of wireless telephones and prescription drugs.
Yellen also could provide more clarity as to when the Fed will begin normalizing its $4.5 trillion balance sheet by incrementally adjusting its current posture of reinvesting all principal from its maturing Treasury and mortgage bonds. An announcement is expected this fall, possibly in September.
JPMorgan CEO Jamie Dimon said Tuesday that a paring of the balance sheets by the Fed and other central banks could be a “little more disruptive than people think.”
Bank stocks could move on Yellen’s testimony and subsequent Q&A, with higher long-term rates and a steeper yield curve being positive for net interest margins. Bank of America shares are in striking distance of a buy point at 25.90, but it is working on a handle that could lower the entry point, if the pattern holds through Wednesday. Meanwhile, Wells Fargo has established a cup-with-handle pattern with a 56.70 buy point.
Bank stocks have outperformed in the past two weeks amid positive Fed stress tests, plans for increased dividends and buybacks. Meanwhile, talk of the European Central Bank tapering its bond-buying program has lifted eurozone bond yields and, by extension, U.S. yields. But on Tuesday, Wells Fargo, BofA, Citi and JPMorgan lost ground in Tuesday stock market trading as dovish Fed Gov. Lael Brainard said she sees the recent softness in core inflation as reason for a pause in rate hikes.
With the 30-hour Amazon.com (AMZN) Prime Day wrapping up in the wee hours of Wednesday morning, either the company or analysts could offer some stats that indicate whether it was a home run.
Analysts estimated that Amazon reached $600 million in Prime Day sales last year, up 50% from $400 million in the prior year. Needham analyst Kerry Rice in a research note said he thinks Prime Day sales this year could reach $700 million to $900 million. Amazon already touted strong early sales of its Alexa-powered Echo home speakers. Selling Amazon gear and especially Prime memberships is the big payoff for Prime Day.
Amazon shares fell 0.2% Tuesday.
IBD’S TAKE: Amazon is the No. 6 stock in IBD’s Retail-Internet industry group. Check out which stocks are ranked higher based on earnings, sales, margins and stock price performance at IBD Stock Checkup.
Nuts & Bolts
Industrial equipment distributor MSC Industrial Supply (MSM) reports before the open on Wednesday, with analysts expecting $1.09 in per-share earnings, up 4% from a year ago. Revenue is seen rising 2.3% to $744.5 million. Industrial and construction supplier Fastenal (FAST), which also reports early Wednesday, is seen growing its profits by 11% to 50 cents a share and increasing revenue by 9% to $1.1 billion. The results could offer clues about the health of the industrial and construction market, as well as the competitive threat posed by Amazon.