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Goldman Sachs and IBM — What you need to know in markets on Tuesday

Myles Udland
Markets Reporter

With the Dow closing in on record highs two of its most prominent members will report results on Tuesday.

In the morning, Goldman Sachs (GS) will report earnings, with Wall Street looking for earnings per share of $4.25 on revenue of $7.5 billion. Goldman’s results in its trading business will also be closely watched by investors after last week saw both JP Morgan (JPM) and Citi (C) report sharp declines in those business lines.

We’ll also be looking for any comments Goldman CEO Lloyd Blankfein has on Tuesday regarding Bitcoin, the hottest topic on Wall Street.

Also in the financial space, Morgan Stanley (MS) will report results in the morning.

A trader works at the Goldman Sachs stall on the floor of the New York Stock Exchange. REUTERS/Brendan McDermid

After the market close, IBM (IBM) will release its quarterly earnings, with analysts looking for “Big Blue” to report earnings per share of $3.28 on revenue of $18.6 billion. IBM’s revenue will be in focus as the company has reported 21 straight quarters of revenue declines. Expectations are for a 22nd straight decline to come in on Tuesday.

On Monday, Netflix (NFLX) earnings were the highlight, the streaming video company reporting better-than-expected revenue and subscriber growth, and the company also said it plans to spend $7-$8 billion on content in 2018. In after hours trade, the stock was up about 1.1%.

Fed sweepstakes continue

Another day, another development in the “race” to become the next chair of the Federal Reserve.

On Monday afternoon, Bloomberg reported that President Donald Trump had met with Stanford professor John Taylor to discuss the job, a meeting that left Trump “gushing.”

And this news was followed by a report from the Associated Press which said that Trump would meet with current Fed chair Janet Yellen on Thursday to discuss the possibility of staying on for a second term at the top of the central bank.

Betting markets on PredictIt — which we’ve been tracking at Yahoo Finance — as of Monday night gave Jerome Powell, a current Fed governor, the best of odds of being confirmed as Fed chair in February. Taylor was second with Yellen and former favorite Kevin Warsh trailing behind.

Possible contenders for Fed Chair.

But what this reporting really ought to illuminate for markets is the idea that there will be a seemingly clear outcome to the process of who is nominated as the next Fed chair before we hear from Trump himself.

Consensus has coalesced around Warsh and Powell, the latter is a sitting Fed governor and the former was a governor under Bush and Obama, being Trump’s pick, but recall that this came after many saw Trump’s chief economic advisor Gary Cohn as a shoo-in for the job.

With Taylor, then, markets are onto their third “favorite” this year and the hopes for clarity around the future of the central bank ought to be fading.

Moreover, Taylor presents a potential policy issue for a president that has said he likes a low interest rate policy.

Taylor is most widely known in economics for developing the “Taylor rule,” which is essentially a formula for where benchmark interest rates out to be based on how the economy is performing. (For more color on the Taylor rule, read former Fed chair Ben Bernanke.)

Now, Bloomberg does note that at a conference last week Taylor said he did not believe “rules should be used as a way to tie central bankers’ hands.” This somewhat softens the idea that a strict, rules-based approach would be the hard and fast law of a Taylor-run Fed.

Additionally, some experts have said that unlike an elected official who may win a seat and look to overturn much of what their predecessor has done — think “repeal and replace” — the future of Fed policy has a lot to do with the existing Fed staff. The outlook for Fed policy in 2018, then, ought not to be fundamentally different if Yellen is replaced as Fed chair, even if she is replaced by someone who is seen as having a vastly different approach to policy.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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