Last week, this current leg of the bull market extended further pushing the S&P 500 & Nasdaq indices to capture multiple new all-time highs, while the Dow retreated by about 0.50%. The catalysts that led to the market’s thrust higher were last week’s CPI & PPI reports coming in cooler than expected coupled with some more doveish than feared messaging from the Fed after their meeting. The strength seen in the S&P 500 & Nasdaq indices is largely concentrated in a handful of sectors, in Technology, Comm. Services, and certain areas of Health Care. Outside of these spaces over the past few weeks the market’s breadth has narrowed by quite a bit. Evidence of this is that despite the S&P making numerous new all-time highs, the NYSE Advance Decline Index has been trending down making lower highs and lower lows since mid-May. Additionally, the Equal Weighted S&P 500 Index has been on a short-term downtrend since mid-May as well. Even with the short-term weakness currently on display in many non-Tech related sectors across the market, still all 11 S&P 500 sectors and roughly 64% of S&P 500 stocks are trading above their 200-Day moving average showing that they are still in a long-term uptrend. Even though the current rally has narrow leadership, fortunately for the market, the leaders are many of the most heavily weighted stocks in the indices and their strength can buoy the market and outweigh the weakness from smaller less-significant stocks. As we witnessed in 2023 and on occasion earlier this year, the S&P 500 can continue to rally for a while even with highly concentrated and narrow leadership which allows the opportunity for the rest of the market to eventually gain traction and catch up.  Given that the majority of the S&P is still in a long-term uptrend, despite the narrow breadth, the long-term health of this bull market is still in good shape even if a number of sectors are looking to take a breather for a while and let the strongest companies in the market continue to propel the indices.

Building off of last week’s jam-packed week that featured multiple new inflation reports and a Fed meeting, this week is a little less high-stakes regarding the major-market events. There are still a number of notable reports that deserve attention in this shortened week of trading. This week we will get the U.S. Retail Sales report from May and investors are sure to pick this report apart to see how the U.S. consumer actually spent during the previous month. Additionally, there are handful of new reports pertaining to the U.S. homebuilding industry due this week. These reports are the updated Home Builder Confidence Index and the Housing Starts & Building Permits reports which are crucial pieces of data for the homebuilder stocks. On the earnings front, there are a few companies reporting their Q1 earnings this week that will catch our eye in Accenture Ltd. & Lennar Corp.

  • U.S. Retail Sales – On Tuesday, the U.S. Census Bureau will reveal their monthly retails sales report. The U.S. Retail Sales report serves to quantify the total that U.S. consumers spent on both durable & non-durable goods. This report is a key piece of macroeconomic data as retail sales are an important measuring stick for the health of the U.S. economy. This indicator carries a heavier weight compared to consumer surveys as this indicator reflects what consumers ‘are actually doing’ vs. what they are saying in a survey.
    • Retail Sales for May are expected to show an increase of 0.3%, which follows April’s report, where monthly retail sales remained flat.
  • Home Builder Confidence Index (HMI) – On Wednesday, we will get the HMI report for the month of June. The HMI report serves as a confidence gauge for the U.S. home builder industry. The HMI index had been trending up since the start of the year before posting a significant 6-point drop last month. As rates have relaxed, should this continue over the coming months expect this index to begin to trend higher again.
    • The consensus prediction for June is that the HMI index will come in at 45. This would be in line with May’s number, reflecting that the May drop was likely due to interest rates hitting a short term high in late-April to early May. As rates have relaxed, we could see an upside surprise here.
  • Housing Starts & Building Permits – Following Wednesday’s HMI report, on Thursday morning, investors will get the latest reads from the Census Bureau on new housing starts as well as new building permits issued in the month of May. This data is significant as it reflects how much work U.S. home builders currently have scheduled. Additionally, it can provide helpful information about the current state of the economy and the consumer’s appetite for spending on large purchases such as housing.
    • New Housing Starts & Building Permits for May are expected to come in at 1.38 million & 1.46 million respectively.
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Federal Reserve Watch

Last week’s FOMC meeting & ‘Dot Plot’ release were highly anticipated as investors hoped that they would provide some clarity on the outlook for Fed rate policy. As expected, the Fed opted to maintain policy rates at current levels and the updated Dot Plot reflected that at the median, FOMC officials are now expecting fewer rates cuts than they were when the last Dot Plot was released in March. The updated 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. This provided some relief for the market showing that the FOMC is still biased in favor of cutting this year, the question is just how many times in the remaining four meetings. During his post-meeting press conference, Chair Powell said that the committee was pleased to see “modest” progress on inflation and welcomed the ‘cooler than expected’ CPI number printed for May. Powell said that the committee has yet to see sufficient evidence to feel comfortable to begin to reduce the Fed Funds Rates currently, however, that if we get a few more consecutive inflation reports like May’s CPI report, then the committee would be convinced that it would be time to begin the upcoming cutting cycle.

  • Now that June’s meeting is behind us, investors’ sights have turned to the next FOMC meeting scheduled in July. There is still little expectation that the Fed will opt to reduce rates at this meeting. However, looking beyond July, after recent economic data beginning to show that some mild economic weakness could be forming and last week’s cooler than expected CPI report, investors are assigning a 70.2% probability that the Fed will opt to cut rates at the September meeting. Looking on to the final two meetings scheduled for this year, futures show that investors feel that 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 81.7% & 96.1% respectively, a marked increase from last week’s probabilities.

This Week’s Notable Earnings

Now that Q2 Earnings season is on the horizon and just a few weeks away, we want to recap Q1 earnings. Of the S&P 500 companies, 79% of them reported an upside earnings beat and the S&P 500 group posted a healthy YoY Q1 earnings growth rate of 5.9%. With Q1 earnings now largely wrapped up, it was a very strong earnings season. There are a few companies set to report their earnings this week that we will be watching for. We will be watching as large-cap software company Accenture Ltd. & two U.S. home builders in Lennar Corp. & KB Home report their Q1 earnings.

  • On Thursday before the opening bell, Accenture Ltd. is on deck to post their Q1 earnings results. While ACN’s FY earnings are expected to grow by 3.6% this year, their Q1 earnings are forecasted to show a marginal YoY decline of 1.25%.
    • ACN earnings are expected to come in at $3.15 EPS.
  • On Monday after the market close, Lennar Corp. will report their Q1 earnings. Following them, on Tuesday, once the market closes, KB Home will also report their first quarter’s earnings. Both LEN & KBH are expected to report slight YoY declines in Q1 earnings, however, analysts forecast that both will grow their FY earnings by 6.1% & 12.5% respectively.
    • LEN earnings are expected to come in at $3.24 EPS.
    • KBH earnings are expected to come in at $1.80 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