By Wallace Witkowski, MarketWatch

Hong Kong selloffs provide sneak peek of what might be in store

While U.S. traders enjoy the President's Day holiday on Monday, they'll be keeping a cautious eye on the reopening of markets in mainland China following a week-long Lunar New Year holiday celebrating the Year of the Monkey.

Caution is required after Asia markets were hammered last week (http://www.marketwatch.com/story/japan-stocks-plunge-to-lowest-point-in-more-than-a-year-2016-02-11), and mainland stocks are expected to follow suit. Last week, Hong Kong's Hang Seng Index , which was open Thursday and Friday, fell 5%, and Japan's Nikkei tumbled 11%.

Additionally, the Hang Seng China Enterprises Index , which tracks mainland China stocks trading in Hong Kong, dropped 6.8% over the two-day period.

For their part, U.S. stocks are already coming off a turbulent week, with the Dow Jones Industrial Average down 1.4%, the S&P 500 Index off 0.8%, and the Nasdaq Composite Index declining 0.6% following a Friday rally (http://www.marketwatch.com/story/dow-futures-up-100-points-as-wall-street-shapes-up-for-a-rebound-2016-02-12).

Not only will Japan be reporting GDP data on Monday, but China releases a host of January economic data, such as balance of trade and loan figures, on Sunday.

With the sneak preview coming out of Hong Kong last week, it would be surprising if a downturn in Chinese stocks on Monday has a meaningful effect on U.S. markets on Tuesday, said Brad McMillan, the chief investment officer at Commonwealth Financial Network.

"I'd be surprised if the effect was substantial," McMillan said. "It might be a short-term blip, but a sustained effect, no. We're going to see turbulence on bad news, but unless there's any game-changing information, the effect will be short-lived and limited."

Friday's market strength was attributed, in part, to an improvement in U.S. January retail sales, where core sales rose 0.6% (http://www.marketwatch.com/story/retail-sales-increase-02-in-january-2016-02-12) following a 0.3% decline in December. Despite concerns about global growth and European bank weakness (http://www.marketwatch.com/story/why-a-selloff-in-european-banks-is-ominous-2016-02-07), the U.S. economy is on firmer footing because of improving jobs figures and consumers continuing to do well, McMillan said.

How that consumer strength translates onto corporate balance sheets will the focus of earnings from one of the last Dow industrial components to report earnings this season: Wal-Mart Stores Inc.(WMT).

Read: Earnings outlook is getting even worse as first-quarter expectations tumble (http://www.marketwatch.com/story/earnings-outlook-is-getting-even-worse-as-first-quarter-expectations-tumble-2016-02-12)

As earnings season draws to a close, nearly 50 S&P 500 companies report results this week. Other consumer-facing companies reporting include Host Hotels & Resorts Inc.(HST), Priceline Group Inc.(PCLN) , Dr Pepper Snapple Group Inc.(DPS) , Marriott International Inc.(MAR) , Nordstrom Inc.(JWN) , Starwood Hotels & Resorts Worldwide Inc.(HOT) , and Discovery Communications Inc.(DISCK)(DISCK)

Notable earnings reports this week

Report date      Company/ticker (FactSet EPS / revenue estimates) 
Mon., Feb. 15    None scheduled. President's Day Holiday 
Tues., Feb. 16   Genuine Parts Co. US:GPC  ($1.01 / $3.75 billion) Zoetis Inc. US:ZTS  (38 cents / $1.25 billion) 
Weds., Feb. 17   Express Scripts Holding Co. US:ESRX  ($1.56 / $26.56 billion) Priceline ($11.81 / $1.96 billion) Host Hotels (16 cents / $1.35 billion) Nvidia Corp. US:NVDA  (32 cents / $1.31 billion) Dr Pepper Snapple (99 cents / $1.53 billion) 
Thurs., Feb. 18  Wal-Mart ($1.46 / $130.66 billion) Nordstrom ($1.24 / $4.22 billion) Starwood (79 cents / $1.44 billion) Marriott (76 cents / $3.73 billion) Discovery Communications (44 cents / $1.67 billion) 
Fri., Feb. 19    Deere & Co. US:DE  (70 cents / $4.9 billion) 

Also this week, expect Fed Chairwoman Janet Yellen's testimony to be a blueprint (http://www.marketwatch.com/story/fed-didnt-cause-market-selloff-yellen-says-2016-02-11) for the January Federal Open Market Committee minutes to be released Wednesday, said Joseph LaVorgna, chief U.S. economist at Deutsche Bank, in a recent note. Concerns about global growth, easing from other central banks and a selloff in markets have brought into question (http://www.marketwatch.com/story/why-economists-increasingly-think-the-feds-hands-are-tied-2016-02-12) whether the Fed will be able to follow though on a plan of four orderly rate hikes this year.

"In short, absent a rebound in growth and clear evidence of a more pronounced firming of inflation, the Fed's median forecast of four rate hikes from a couple of months ago already appears dead-on-arrival," LaVorgna said.

On Friday, Bank of America Merrill Lynch joined the growing chorus of strategists (http://www.marketwatch.com/story/forecasts-grow-bleaker-sp-will-end-this-year-at-2050-credit-suisses-strategist-says-2016-02-02) cutting their year-end targets for the S&P 500. Savita Subramanian, equity and quant strategist at B. of A. Merrill Lynch, trimmed her year-end target for the index to 2,000, down from a previous 2,200, assuming that "global growth remains constrained by tightening financial conditions and weak investment spending."

 

(END) Dow Jones Newswires

February 13, 2016 08:16 ET (13:16 GMT)

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