Tuesday is a big day for the U.S. consumer.
Earnings out of McDonald’s (MCD) before the market open will set to the tone for the Dow, with analysts looking for earnings per share of $1.58 on revenue of $5.23 billion. The company’s U.S. same-store sales are expected to rise 5% in the fourth quarter. In 2017, shares of McDonald’s rose more than 40%.
McDonald’s earnings will be a major market event on Tuesday morning.
And on the economics calendar, the November reading on home prices from S&P/Case-Shiller is set for release at 9:00 a.m. ET, while The Conference Board’s January report on consumer confidence will be released at 10:00 a.m. ET.
Tuesday also marks the official start of the two-day Federal Reserve meeting, which concludes Wednesday with the central bank’s 2:00 p.m. ET announcement of its latest monetary policy decision. No change is expected in its interest rate policy.
And ugly start to the week
Stocks had an ugly start to the week on Monday.
With a 0.67% decline on Monday, the S&P 500 broke a 99-day trading day streak of no single-session losses over 0.6%, the longest on record according to Ryan Detrick at LPL Financial. The Dow lost triple-digits, sliding 177 points, while market stalwarts including Facebook (FB) and Apple (AAPL) both fell more than 2% to start the week.
But in the stock market right now, the focus is largely on the bond market.
The 10-year U.S. Treasury yield climbed to 2.7% on Monday, the highest since 2014, while the 2-year hit 2.11% to continue its march higher. And with this move higher in yields, particularly the 10-year which serves as a benchmark for products across the financial system, investors now face the prospect of substantially rising interest rates for the first time in years.
“Given the market’s recent strength, it is not surprising that investors have become increasingly uneasy with the rise in interest rates and the potential for future inflation,” writes Jonathan Golub, equity strategist at Credit Suisse.
Higher interest rates make current dollar-denominated debts more costly, dent the relative attractiveness of riskier assets like stocks, and potentially mark the end of the long bull market run in bonds which has seen yields march lower over the last 30 or so years. Lower yields indicate higher prices for bonds.
Jeff Gundlach, for instance, has said that a sustained move over 2.63% in the 10-year would send the yield to 3% in time, with this move marking the end of the bull market and a move that would be negative for markets. Gundlach said earlier this month he expects a negative total return for the S&P 500 in 2018.
Meanwhile, the VIX, which tracks implied volatility in the stock market, is at 5-month highs as investors see one of the biggest consensus calls for 2018 start to play out — more action coming to markets.
2017 was a year defined by the calm in markets around the world, despite all of the political turmoil coming from Washington, D.C. and the seeming instability of the U.S. political environment. And yet in calling for higher stock prices in 2018 on the back of lower tax rates, most strategists also expected volatility to return to markets.
So while each of the major U.S. stock indexes remains up better than 7% so far this year, the week has gotten off to a more interesting start than we’ve seen in months.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
Read more from Myles here:
- One candidate for Amazon’s next headquarters looks like a clear frontrunner
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- Auto sales declined for the first time since the financial crisis in 2017
- The markets story of 2017 — real returns, fake news
- Evidence shows corporate tax cuts don’t work
- Foreign investors might be the key to forecasting a U.S. recession
- It’s been 17 years since U.S. consumers felt this good about the economy
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