During the past week, we saw all three major market indices finish the week in the green as the Nasdaq just barely edged out a gain for the week. This is the first time in a few weeks that all three major indices finished the week with a gain as in recent weeks the Dow Jones has lagged the S&P and Nasdaq. The bullish thrust in last week’s shortened trading boosted both the S&P and Nasdaq both to multiple new all-time highs. These new highs in the market were made even as a number of the most-heavily weighted stocks that have been ‘moving the needle’ actually sold-off last week and finished the week in the red. Despite these leading stocks declining, the NYSE Advance-Decline index actually did not make a new low last week and instead leveled out. Along with this, 8 of the 11 S&P sectors ended the week higher, led by Energy and Financials. Additionally, the number of S&P 500 stocks trading above their 200-Day moving average increased to 67.8% up from 64% at the end of the previous week. So likely we were experiencing some profit-taking from the leading stocks and saw these profits being redistributed into other stocks and sectors, which helped to lift the market to new highs as the rally broadened out somewhat.

Coming off of last week’s events where much of the macro-economic data we got was quite mixed with U.S. retail sales and a few different homebuilding reports disappointing to the downside, this week we will get a number of crucial macro reports that investors are sure to be keyed into. This week we will get the final U.S. Q1 GDP report after the first two estimates left some to be desired. Additionally, our team will be watching the Initial Jobless Claims that come out on Thursday as this metric is now starting to show signs of trending higher to a more ‘elevated’ state. Finally, the event that will likely have the market’s attention all week will be the updated PCE inflation report due on Friday. Other than these handful of key macro reports that we will be watching closely, there are a few different companies scheduled to report their Q1 earnings this week, including Micron Technology, Inc. that will draw our team’s attention.

• Gross Domestic Product (GDP) – On Thursday morning we will get the second revision to the Bureau of Economic Analysis’ Q1 U.S. GDP estimate. For each quarterly GDP report the BEA first releases two estimates before posting their final quarterly GDP report. This report will be the final number for Q1 U.S. GDP. The initial Q1 estimate was released in late April and missed significantly to the downside and then was further revised even lower.
  • The second Q1 GDP release had US GDP growth revised down to 1.3% from the original estimate of 1.6%. Now the final release is expected to come in at 1.3%, in line with the second estimate.
• Initial Jobless Claims – The Department of Labor provides a weekly report that records new Initial Jobless Claims in the U.S. Over the past six months initial jobless claims have slowly continued to trend higher, however, still remaining below the recent high made last year in June. As long as initial claims remain consistently below 240K, this serves as a sign of continued health in the labor market. The past two weeks’ reports have come in right at 240K.
  • Thursday’s report is expected to show 240K new initial claims, which is right in line with the previous two weeks. Should this number trend higher and stay elevated above 240K and approach 300K, expect this to upset some investors.
• Personal Consumption Expenditures Price Index (PCE) – To close out the trading week, on Friday, the new PCE & Core PCE data for the month of May will be released. The PCE price index data is gathered to track the costs that U.S. consumers are paying for goods and services and to document the change in these costs over time. Core PCE is a pared down measure that excludes more volatile categories like Food & Energy and this is the index the Fed watches the most closely.
  • May’s YoY Core PCE number is expected to come in at 2.6%, which would be a welcomed decline from April’s report of 2.8%. Should the PCE report meet expectations, this would signal strong continued progress in bringing inflation back down to a tolerable rate of increase.

Federal Reserve Watch

This past week featured a few speaking events from various Fed members. However, they produced few headlines as the Fed members by and large continued to communicate the same message from the FOMC after their recent meeting. This week features another healthy serving of Fed member speaking events so expect this week’s messaging to be much of the same. Based on recent messaging the Fed still seems clear that they remain biased in favor of cutting rates this year. The only question that divides FOMC members is the number of cuts this year. The updated ‘Dot Plot’ graph shows that on average, the FOMC is expecting only one rate cut by the year’s end, however, this was the majority opinion by a very slim margin. It would only take one additional FOMC member to opt for two cuts by year’s end to have made this the majority opinion instead. Given recent ‘cooler than expected’ inflation data, if this trend persists and inflation continues to trend back down toward 2%, this additional progress will likely be the evidence the Fed is looking for to decide to begin the upcoming ‘cutting cycle’.

• Looking forward to the upcoming FOMC meeting scheduled for late July there is still little expectation that the Fed will opt to reduce rates at this meeting. However, looking beyond July, with some recent economic data beginning to show that mild economic weakness could be forming, coupled with cooler than expected inflation data, markets are assigning a 66.8% probability that the Fed will opt to cut rates at the September meeting. Looking at current Fed Funds futures, investors feel we will end the year with the Fed’s policy rate in the range of 4.75%-5.00% which would be 50 basis points lower than status quo. This indicates that now the market is anticipating two rate cuts this year. At market close on Friday, Fed Futures odds for the November & December meetings show that markets are pricing in the likelihood of a rate cut at 79.4% & 94.9% respectively.

This Week’s Notable Earnings

With Q2 Earnings season set to kick off during the second week of July, Q1 earnings reporting is all but done with only a few notable companies left to report.There are a few of these remaining companies scheduled to post their earnings results this week and we want to let you know about them so you can have them on your radar as well. The report that will likely garner the most attention this week will be memory chip-maker Micron Technology, Inc. Additionally, there are a handful of companies set to report earnings that will provide a window into the how strong both the consumer and economy are currently. The companies that I am referring to are FedEx Corp., Nike Inc., & Levi Strauss & Co.

• On Wednesday after the closing bell, Micron Technology, Inc. is set to post their Q1 earnings results. Micron is a major manufacturer of the important DRAM memory chips which are an important input into building A.I. capable servers. If MU Q1 earnings meet analysts’ expectations, the company will post YoY Q1 earnings growth of 135.7%.
  • MU earnings are expected to come in at $0.51 EPS.
• Once the market closes on Tuesday, FedEx Corp. will report their Q1 earnings. FedEx of course is one of the leading transportation companies globally and has a major presence here in the U.S. Transportation companies like FedEx act as a good indicator for the goods portion of the economy because when consumers are purchasing more goods, FedEx has to transport more of them, thus increasing their own sales and earnings. FedEx is expected to grow their Q1 earnings by 8.5% when compared to same quarter from the previous year.
  • FDX earnings are expected to come in at $5.36 EPS.
• Finally, this week we will get Q1 earnings results from two well-known retailers which will provide clues to the current health of the consumer and where they may be spending their dollar. On Wednesday, Levi Strauss & Co. will report their results after the market closes. Additionally, on Thursday, after the closing bell Nike, Inc. will post their Q1 numbers. Both NKE & LEVI are expected to post strong YoY quarterly EPS growth of 27.3% & 175.0% respectively.
  • NKE earnings are expected to come in at $0.84 EPS.
  • LEVI earnings are expected to come in at $0.11 EPS.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,

Blane Markham