Last week we saw the markets recover from an early week sell-off, which was a carryover from the prior week, to then gain some traction and finish the week with both the S&P 500 & Nasdaq making new all-time highs. The end of week bullish run was largely led fueled by the tame May PCE report coming in in-line with expectations and posting a month over month decline. This combined with stronger than expected U-Michigan Consumer Sentiment boosted investor’s enthusiasm to close out the second quarter, carrying the market to make the new highs early in the day before fading into Friday’s close. Now, despite the new highs, only the Nasdaq finished the week in the green, with both the Dow & S&P 500 ending the week largely unchanged but slightly in the red. Taking a check of the broader markets after Friday’s close, roughly 68% of S&P 500 stocks remain in a long-term uptrend as they are currently trading above their 200-Day moving average. This is while only 47% are currently trading above their 50-Day moving average. These two metrics indicate good health for this current bull market as more than 2/3 of the S&P 500 is in a sustained uptrend, however, the market is far from being widely overbought. The Equal-weight S&P 500 index has remained rangebound and roughly flat over the past few weeks, continuing to signal consolidation across the broader market. Additionally, the NYSE Advance Decline Index began to trend higher last week and has not made a new short-term low over the past month. All of these are strong signs moving forward that the bull market is in good shape and has just been allowing for the inevitable profit taking and consolidation to occur after the strong upward move we have seen over the first half of the year. Once the opportunistic sellers shake their way out of the market and we enter the meat of Q2 earnings season, if companies can meet the moment and deliver on their earnings expectations, we anticipate this to be the catalyst to propel the next leg of this bull market.

After last week’s trading where we saw the market propelled to new highs on the back of strong inflation and economic data, this week we have a handful of significant macroeconomic reports expected that investors will surely be watching for. During this shortened week of trading, we will get the latest JOLTS report from the BLS. Then, following the market closure on Thursday, in observance of the July 4th holiday, on Friday, the market will get to dive into the BLS’ June Job’s report including Nonfarm payrolls & the Unemployment Rate. This will likely be the main macro-event that traders will be watching for this week. In the way of earnings, frankly, there is little worth covering this week outside of one notable company in Constellation Brands, Inc., that is due to report. This week’s market action will be influenced much more by the expected macro reports and anticipation of next week’s earnings reports as Q2 earnings reporting begins.

  • Job Openings and Labor Turnover Summary (JOLTS) – The Bureau of Labor Statistics’ May JOLTS report will be released on Tuesday morning shortly after the market opens. The JOLTS report tracks the number of job openings & various metrics on the number of workers who left the workplace during the respective period.
    • May’s job openings are expected to come in at 7.9 million, a month-over-month decrease of about 2.5%, which could be a continuation of the trend over the past few years. If this number comes in around the expectation, it will represent a 15.1% decrease over the past year.
  • U.S. Nonfarm Payrolls – As a part of the Bureau of Labor Statistic’s monthly jobs report, the Nonfarm Payrolls report aims to quantify the number of employed workers from the U.S. labor force, excluding a few specific occupations. The key metric generally watched by investors is the month-to-month nominal change in employment.
    • U.S. Nonfarm payrolls are expected to report an increase of 195K jobs for the month of June. In May, the U.S. added 272K jobs well-above the expectation of 185K.
  • U.S. Unemployment Rate – As a part of the Bureau of Labor Statistic’s monthly jobs report, the Unemployment Rate report aims to measure the percentage of workers in the U.S. labor force who are currently unemployed but are able to work and are seeking employment.
    • Expectations are that the U.S. unemployment rate in June remained at 4.0%, staying in-line with May’s number.
Want a glimpse at which trades I am exploring each week? Click here to check it out.

Federal Reserve Watch

Despite last week’s numerous Fed member speaking events, we got little in the way of updates regarding the member’s current thoughts on monetary policy. The Fed Governors that we heard from largely all continued to communicate the same consistent message that the FOMC is dedicated to bringing inflation down to the committee’s target range of 2%. There was little mention about the committee considering any future rate hikes in this cycle, so it still seems clear that they remain biased in favor of cutting rates this year. The question that investors are still debating is how many rate cuts the FOMC will opt for this year. Given a few recent consecutive ‘cooler than expected’ inflation reports, this is building the body of evidence the Fed is looking for in order to be convinced that inflation is indeed on a definite trajectory back towards 2.0%. If this recent trend persists and the rate of inflation begins to fall back toward the target range, expect the Fed to kick off their ‘cutting cycle’ later on this year.   

  • At the upcoming FOMC meeting scheduled for late July there is still little expectation that the Fed will opt to reduce rates at this meeting. Looking beyond this meeting, on to the final three meetings of the year, investors remain confident that the Fed’s rate cutting cycle will begin soon. With some recent economic reports displaying pockets of mild economic weakness coupled with cooler than expected inflation data, markets are assigning a 62.3% 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 at present 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 79.6% & 91.4% respectively.

This Week’s Notable Earnings

This week is a relatively quiet week earnings-wise as virtually all companies have already reported their first quarter’s earnings except for a small handful. Most investors are anxiously awaiting next week’s earnings news as Q2 earnings season will get underway with the major Financials beginning to report. However, there is one company scheduled to report this week that is worth mentioning and that is U.S. alcoholic beverage giant, Constellation Brands, Inc.

  • On Wednesday prior to the market open, Constellation Brands, Inc., is set to report their Q1 earnings. STZ is one of the leading alcohol producers and marketers with many brands in their portfolio including Modelo Especial, Robert Mondavi Winery, & Meiomi amongst others. Despite the current macro consumer trend of decreased alcohol consumption, STZ is still projected to post solid YoY Q1 earnings growth of 18.9%.
    • STZ earnings are expected to come in at $3.46 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.


Blane Markham

Author, Weekly Market Periscope

Hughes Optioneering Team

Don't Make these 5 Fatal Trading Mistakes, Click here to see what they are and avoid them.