Pre-market quotes for Monday, March 16, forecasted an 80-point gain from Friday's Dow close. The DJIA Index shed 145 points on Friday thanks to falling crude oil prices and investor jitters about possible interest rate increases in the near future.
Today, the markets will respond to a light macro data release schedule that focuses just on February industrial production data and the Federal Reserve's report on Treasury International Capital (TIC). A light schedule is compounded by investors' anxiety over the start of this week's FOMC meeting. The Federal Open Market Committee gathers on Tuesday and Wednesday to discuss U.S. monetary policy. Although the central bank is unlikely to raise interest rates, the markets will await Fed Chair Janet Yellen's news conference for clues on when the bank might increase rates.
Investors with an eye on global markets will likely want to focus on the German Central Bank's "Buba Monthly Report," which could offer a bit of insight into officials' views of the current Greek debt standoff.
Here's what else pre-market quotes tell us about the stock market today - as well as your "Money Morning Tip of the Day" to make it a profitable Monday:
- Debt Delay: The U.S. debt limit will go back into effect today after a one-year suspension by the Treasury Department. The U.S. debt ceiling will hit roughly $18 trillion. Last week, Treasury Secretary Jack Lew urged Republican House Speaker John Boehner to raise the debt limit without debate and to avoid a possible government shutdown. The U.S. Senate leader, Mitch McConnell (R-Ky.) said that Republicans will not allow a government default or shut down in the near future.
- Parity Push: The euro's march toward parity with the U.S. dollar continued last week as the European Central Bank continues its effort to keep its economy afloat through a massive bond-purchasing program. The descent of the euro is expected to accelerate much faster than previously expected. Over the weekend, Goldman Sachs Group Inc. (NYSE: GS) said that Euro-Dollar parity is likely to happen in September 2015, well sooner than the company's Forex specialist Robin Brooks originally forecasted to occur in late 2016. The expected June interest rate increase by the Federal Reserve is expected to be a big boost to the dollar, which will only facilitate a declining euro against the greenback. The Market Vectors Double Short Euro ETN (NYSE: DRR) rose nearly 3% on Friday.
- Activist Pushback: Shares of DuPont Co. (NYSE: DD) were down 2.7% this morning on news that the company has rebuffed activist hedge fund Trian Fund Management's offer to draw a truce on its board nominees. Although the company said it was willing to accept one of the hedge fund's nominees, the industrial chemical giant said that appointing the other three nominees isn't in the best interest of shareholders. In a letter to Trian's CEO Nelson Peltz on Friday, DuPont's CEO said the fund is employing a "high-risk agenda" to break apart the 200-year-old company.
- Activist Woes: Shares of BP Plc. (NYSE ADR: BP) were down 1.3% this morning on declining oil prices. However, over the weekend the company announced that it will invest $12 billion in Egypt to produce roughly 3 billion barrels of oil. The agreement between the energy giant and the Cairo government centers on exploration opportunities in the West Nile Delta, East Nile Delta operations, and development opportunities in the Gulf of Suez.
- Oil Prices Today: Oil prices continue to slide, and enter Monday on a two-week loss. Last week, Brent crude prices slipped 8.5% as increased pressures from oversupply rattle the markets. This morning Brent crude, priced in London, continued its decline, falling nearly 1.4% this morning to hit $53.91. Meanwhile, April 2015 futures for U.S. crude, priced at the NYMEX in New York City, fell another 1.2% to $44.27 per barrel. Weakness is being exacerbated by ongoing negotiations between the U.S. and Iran over the latter's nuclear program. Over the weekend, Morgan Stanley (NYSE: MS) issued a report indicating that a nuclear deal between the two nations would increase the risk of a further decline in global oil prices.
- [epom key="ddec3ef33420ef7c9964a4695c349764" redirect="" sourceid="" imported="false"]Earnings Reports: Investors can expect earnings reports today from Inovio Pharmaceuticals Inc. (Nasdaq: INO), Molycorp Inc. (NYSE: MCP), Quiksilver Inc. (NYSE: ZQK), Shanda Games Ltd. (Nasdaq: GAME), and Black Diamond Inc. (NYSE: BDE).
Full U.S. Economic Calendar March 16, 2015
- Empire State Manufacturing Survey at 8:30 a.m.
- Industrial Production at 9:15 a.m.
- Housing Market Index at 10 a.m.
- 4-Week Bill Announcement at 11 a.m.
- 3-Month Bill Auction at 11:30 a.m.
- 6-Month Bill Auction at 11:30 a.m.
- Treasury International Capital at 4 p.m.
Money Morning Tip of the Day: Don't let Dow Jones changes dictate your stock decisions. Getting dumped from the Dow is not always as bad as it sounds.
Most of the mainstream financial media is frothing over what Apple Inc. (Nasdaq: AAPL) will do for the Dow Jones Industrial Average. It will replace AT&T Inc. (NYSE: T) on the index March 18.
But a look at how Dow stocks do after changes to the index shows us that AT&T is headed for a rise.
You see, when you compare the performance of previous Dow Jones rejects with the stocks that replaced them, on average the rejects come out ahead.
A 2008 Pomona College study looked at this effect using data from 1928 to the end of 2005.
They found that Dow Jones rejects collectively gained 175% in the five years after they were removed from the index, while new members gained just 65%.
What's behind this?
At work here is a basic statistical phenomenon called regression to the mean. A series of unusually high or low measurements will over time move closer to the average.
"Regression to the mean suggests that companies taken out of the Dow may not be as bad as their current predicament indicates and the companies that replace them may not be as terrific as their current record suggests," the Pomona study says.
The weight of the evidence means Dow rejects don't have to be dumped for your portfolio - subject to due diligence, of course.
To read more about what happens to stocks when they are added to or removed from the Dow, go here: Don't Dump Dow Jones Industrial Average Stocks Just Because the Index Did
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.