Brace yourself for another wild and wooly week on Wall Street. Janet Yellen speaks to the (most likely hostile) Senate Banking Committee for two days of testimony starting Thursday; the nation's raucous political circus shifts to the state of New Hampshire, which holds the first-in-the-nation primary on Tuesday; and the Chinese New Year holiday (ushering in "The Year of the Monkey") shuts down the world's second-largest economy for an entire week.
Also this week, the latest retail sales numbers are unveiled and several major companies -- particularly in the struggling technology, health care and media sectors -- report operating results. The year began with slower retail sales and high inventories; the latest retail numbers are expected to disappoint.
In her semi-annual cross-examination before the Republican-controlled Congress, Yellen is expected to underscore the central bank's intention to gradually tighten the monetary spigot this year, despite signs of softness in the U.S. economy. That said, analysts anticipate the Fed to only modestly raise interest rates in coming months, lest the central bank stifle the still vulnerable recovery. Regardless, many GOP lawmakers are innately skeptical of the Fed's very existence. Their questioning of Yellen is sure to be pointed.
The Fed's tentative approach traps investors in a vise: Dividend growth is slowing, as other interest-rate sensitive investments become more attractive from a risk/reward standpoint, but rates remain stuck near zero, which means anyone hungry for yield will have to work harder to find it. Like Odysseus navigating between the sea monster Scylla and the whirlpool Charybdis, income investors face twin evils with no easy solutions.
Which brings us to the "monkey business" in China. The country recently reported that its gross domestic product had grown by only 6.9% in 2015, the slowest rate in 25 years, but the country's policy-makers declared with a straight face that the pace fell within the country's target of about 7%.
China is the only major industrial economy that even sets a GDP target (which calls into question the quality of that growth) and the accuracy of the government's official statistics is always dubious. Perhaps for China, GDP should stand for "grossly deceitful projections." So unfortunately for whipsawed investors, China remains a wild card, as the country's slowing economic growth, corruption scandals, a deeply indebted banking sector, and currency chaos continue to throw global markets into turmoil.
Meanwhile, major corporate players in the technology, health services and media industries report earnings this week. All three sectors have encountered headwinds so far in 2016. Year to date, the Technology Select Sector SPDR ETF (XLK - Get Report) is down 3.71%, the Health Care Select Sector SPDR ETF (XLV - Get Report) is down 7.72%, and the PowerShares Dynamic Media ETF (PBS - Get Report) is down 5.89%, all compared to a 4.98% decline for the S&P 500.
Investors looking for growth opportunities among "game changing" companies will pay particular attention to Tesla Motors (TSLA - Get Report) and Twitter (TWTR - Get Report) , both of which report earnings on Wednesday. Tesla's shares have fallen 32.25% YTD, their lowest level since February 2014, as cheap gas, delayed product launches, late deliveries, increased competition, and CEO Elon Musk's widely publicized spat with a supposedly rude customer have weighed on shares.
Twitter's shares are down 32.07% YTD, as the social media company struggles to regain its technological edge in a fast-changing Internet landscape.
Here's a snapshot of the week ahead:
Scheduled Earnings Reports:
NFIB Small Business Optimism Index
MBA Mortgage Applications
EIA Petroleum Status Report
Bloomberg Consumer Comfort Index
Janet Yellen Speaks
Baker-Hughes Rig Count