The final trading week of the month, quarter and first half of 2024 will greet investors with a key inflation number, a light smattering of corporate results and a rush of superlatives to characterize a new period of breakdown of consensus for the markets.
On Friday morning, investors will see the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred measure of inflation, which is expected to show that prices on a “core” basis – which excludes food and l energy – increased by 0.1% last month. This would be the slowest monthly increase since last November.
On an annual basis, core PCE inflation is expected to jump to 2.6%, its lowest level since March 2021.
Earlier this month, the Consumer Price Index (CPI) showed that inflation continued to ease, a report that strengthened investors’ bets on a Federal Reserve rate cut later this year. Fed forecasts released June 12 show the central bank plans to cut rates at least once in 2024.
The earnings calendar will remain in a lull this week, and results from FedEx (FDX) on Tuesday, Micron (MU) on Wednesday and Nike (NKE) on Thursday will serve as highlights.
Micron’s report will be closely watched for signs of how robust demand for AI remains across its portfolio. Nike’s report comes at a crucial time for the retailer, which has seen its shares fall 11% this year as it struggles to fend off competition in its core athletic shoe market from rivals like Adidas and new arrivals like On (ONON) and Deckers’s (DECK). Hoka brand.
Outside of market hours, investors’ attention will also likely be focused on Thursday night’s presidential debate between President Biden and former President Donald Trump, the first of two currently scheduled debates between the presumptive candidates.
Another AI rally
Last year, AI business took the markets by storm. The S&P 500 rose more than 22% and the Nasdaq rose almost 40%.
Heading into 2024, one of the most popular calls on Wall Street was that this rally would expand, attracting lagging sectors of the market that were overlooked during last year’s “AI Everything” rally.
However, in the first months of 2024, little has changed.
The performance gap between the S&P 500 and the Nasdaq has narrowed – the S&P 500 is up more than 14% this year, the Nasdaq more than 17% – but the Dow remains lagging, having risen only by 3.8% so far in 2024.
Meanwhile, AI-related plays like Nvidia (NVDA), Super Micro Computer (SMCI), Broadcom (AVGO), and the aforementioned Micron are among the S&P 500’s best performers so far this year. AI-related energy plays Vistra (VST) and Constellation (CEG) are also among the index’s best performers year-to-date.
“The first-half recovery showed value in ‘staying the course,'” wrote John Stoltzfus, chief investment strategist at Oppenheimer Asset Management.
“In our view, the abrupt reversal in direction of bond yields at the end of 2023 and the resulting rally in stocks since then illustrate the importance of investor patience and adherence to diversified portfolio allocations. Stocks rose again in the second quarter despite signs of an economic slowdown. The stock market rally in the fourth quarter, which continued well into the first half of this year, underscores the need to stay invested.
4 themes for 2024
In modern markets, for better or worse, earnings season doesn’t really end.
But as Wall Street strategists look to put a damper on first-quarter results as second-quarter results are set to be released after the July 4 holiday, Dubravko Lakos-Bujas and the strategy team JPMorgan shares highlighted four key themes in a note to clients on Friday morning.
The first is of course AI.
AI investments, strategies and all sorts of credentials peppered earnings calls throughout the quarter. Data from FactSet showed that 199 members of the S&P 500 mentioned AI during their earnings calls through the end of May.
The JPMorgan team noted that the companies remain “constructive around the topic of AI, announcing additional capital spending, new AI models and updates on the organization’s ongoing reorientation towards the provision of AI products”.
The second theme concerns weight loss drugs.
The best-performing stocks in the S&P 500 this year are primarily focused on AI gaming. Eli Lilly (LLY), maker of popular weight loss drugs Mounjaro and Zepbound, ranks eighth in year-to-date gains at 52%.
Eli Lilly is now also the eighth largest company in the S&P 500 with a market capitalization of more than $800 billion.
American consumption is the third key theme of the results season.
Specifically, what JPMorgan called “increasing reservations about the level of resilience given consumer reluctance on pricing, price cuts and value-seeking behavior, particularly among lower-income consumers.”
As John David Rainey, Walmart’s (WMT) CFO, told Yahoo Finance last May: “We’re seeing wallets are still stretched and customers are still looking for value.” »
Last week, retail sales data for May showed that sales grew at a slower pace than expected, while April sales were revised sharply downward. At least one economist said the report adds to “signs that (consumers) are in a bit of trouble.”
With consumer spending accounting for about two-thirds of U.S. GDP growth, how cautiously — or boldly — buyers put their hands on their wallets is still a key consideration for investors.
The final theme flagged by the JPMorgan team was “spend management,” which, like AI, is another holdover from previous years.
In 2022, as tech stocks were hit by rising rates, layoffs began to sweep through an industry that had been actively recruiting talent in 2020-21. Continued cost consolidation in 2023 has helped investors get excited about profit margins heading into 2024.
And management teams still get plenty of coverage from the broader environment to continue downsizing or reducing other expenses.
“We also remain focused on long-term efforts to sustainably reorganize our cost base,” Alphabet (GOOG) CEO Sundar Pichai told investors in late April.
“We continue to manage our workforce growth and align our teams to our highest priority areas. This accelerates decision-making, reduces levels and allows us to invest in the right areas.”
At the end of the first quarter, Alphabet employed about 10,000 fewer people than a year ago. Earlier this month, the tech giant announced it had hired a new CFO.
Weekly calendar
Monday
Economic data : Dallas Fed Manufacturing, June (-14.9 expected, -19.4 previously)
Earnings: No notable earnings are anticipated for the publication.
Tuesday
Economic data : S&P CoreLogic Case-Shiller Home Prices, April (+0.33% month-over-month); FHFA Home Price Index, April (+0.1% month-over-month); Conference Board Consumer Confidence, June (100 expected, 102 previously); Richmond Fed Manufacturing, June (0 ago)
Earnings: FedEx (FDX), Carnival (CCL), TD SYNNEX (SNX), Progress Software (PRGS)
Wednesday
Economic data : MBA real estate loan applications, week of June 21 (+0.9% previously); New home sales, May (+2.5% expected, -4.7% previously)
Earnings: Micron (MU), BlackBerry (BB), General Mills (GIS), Paychex (PAYX), Levi Strauss (LEVI), Jefferies (JEF), Concentrix (CNXC), AeroVironment (AVAV), MillerKnoll (MLKN)
THURSDAY
Economic data : First quarter GDP, third estimate (+1.4% expected annualized rate, +1.3% previously); First unemployment registrations, week of June 22 (previously 238,000); Durable goods orders, May (+0.1% expected, +0.6% previously); Pending Home Sales, May (-7.7% Previously): Kansas City Fed Manufacturing Activity, June (-2% Previously)
Earnings: Nike (NKE), Walgreens (WBA), McCormick (MKC), Acuity Brands (AYI), American Outdoor Brands (AOUT)
Friday
Economic data : PCE inflation, month-on-month, May (+0% expected, +0.3% previously); PCE inflation, over one year, May (+2.6% expected, +2.7% previously); Core PCE inflation, month-on-month, May (+0.1% expected, +0.2% previously); Core PCE inflation, year-on-year, May (+2.6% expected, +2.8% previously); Personal income, May (+0.4% expected, +0.3% previously); Personal spending, May (+0.3% expected, +0.2% previously); University of Michigan Consumer Sentiment, June (65.8 expected, 65.6 previously)
Earnings: No notable earnings are anticipated for the publication.
Correction: An earlier version of this story referred to Jonathan Golub, not John Stoltzfus, as chief market strategist at Oppenheimer Asset Management. Golub is a strategist at UBS.