Last week investors continued to have questions answered and uncertainties removed, which acted as a positive catalyst for the markets. Largely investors just wanted to get last week’s Fed meeting out of the way but it turned into a positive when Fed Chair Powell provided some remarks that were less hawkish that feared and seemingly confirmed that there are no more rate hikes to come. Essentially all of the significant market moving earnings reports from this past week came in quite well, showing strong earnings growth. Additionally, to close out the past week, the weaker than expected jobs report was about a good as it could have been for the stock market given the current inflation scenario. Collectively, these positive events served as a boon to the broader markets as all three major indices finished the week higher, with the S&P 500 and Nasdaq marking their second consecutive week higher. Following last week’s bounce, now 72% of S&P 500 stocks are trading above their 200-Day moving average, signaling that the majority of the market remains in a longer-term uptrend. Investors could still be in for some choppiness over the short-term, however, last week’s events were significant positives for the direction of the stock market.

Following the bevy of good news the market received last week, now many of the short-term hurdles have been cleared. Yet, this week does bring a few interesting economic reports that traders will be watching closely. Expected this week are the updated U.S. Consumer Credit, Initial Jobless Claims, & MCSI Consumer Sentiment reports. The data in these reports will be used in conjunction with recent significant macroeconomic reports to attempt to paint a picture illustrating where the U.S. economy is presently but more importantly what lies ahead. Despite most companies having already reported their Q1 earnings, there are still a few earnings reports left that have caught our team’s eye and other investors are sure to be watching as well. These earnings prints include the likes of Walt Disney Company, McKesson Corp., & Uber Technologies Inc. The theme of this week is less oriented towards high-stakes pivotal market events like last week and more towards seeing earnings continue to come in strongly and also to see if fresh macro reports validate some emerging trends in the labor market and economy.

  • U.S. Consumer Credit – Each month the Federal Reserve releases a report that tracks the total amount of credit that is extended to U.S. consumers. This report tracks both revolving and non-revolving credit being used. This report is closely watched to decipher the level at which the consumer is relying on credit in order to keep spending.
    • The consensus is that total U.S. consumer credit will have increased by $16.5 billion in March. This would follow February’s increase of $14.1 billion. Should Tuesday’s report meet the expectation, thus far this year U.S. consumers would have added an average of 15.3 billion in credit per month, a much higher pace than last year’s monthly average of 10.4 billion.
  • Initial Jobless Claims – The Department of Labor provides a weekly report that records new Initial Jobless Claims in the U.S. Over the past year, initial claims have continued to trend downward, peaking in June of last year. As long as initial claims remain consistently below 240K, this serves as a sign of continued health in the labor market.
    • Thursday’s report is expected to show 210K new initial claims, which is marginally higher than the previous week’s number of 208K. Following last week’s unemployment report which showed the rate had moved up by 0.1%, this could translate to an uptick in new jobless claims.
  • Consumer Sentiment (MCSI) – Every month the University of Michigan conducts a household survey, and its purpose is to measure the U.S. consumer’s current feelings about the economy and their personal finances. Given that consumer spending makes up about 70% of U.S. GDP, the consumer’s current sentiment is a crucially important tool in forecasting short-term economic trends as consumer sentiment heavily influences spending. This survey is compiled to form an index, the MCSI, which can quantify sentiment trends.
    • In April’s report, MCSI saw a slight decrease of 2.8% to 77.2. Despite the slight decline, the MCSI index is still near its multi-year high and well off of the lows seen in 2022. Friday’s report for May is expected to show a slight increase of 1.0% to 78.0.

Federal Reserve Watch

During last week’s FOMC meeting, the committee confirmed the market’s suspicion by opting to maintainmonetary policyat current levels. Chair Powell reiterated that he and other FOMC members remain firm in their mission to bring inflation down to their target range of 2%. Chair Powell also effectively communicated that he and the FOMC committee are not concerned with current economic growth and labor market conditions, adding that he does not see stagflation on the horizon which eased many investor’s worries. Additionally, Chair Powell reaffirmed his stance that current monetary policy levels are sufficiently restrictive to deal with stubborn inflation and that he does not feel further hikes in this cycle are necessary. The FOMC committee has again seemingly confirmed that there will be no more rate hikes in this cycle and that the next ‘move’ will be a cut. However, this policy rate cut will not occur until the Fed has seen sufficient evidence confirming that inflation is continuing to fall toward their target goal. Up to this point, we have yet to see the evidence they are looking for.

  • Following last week’s Fed meeting and weaker than expected jobs report, Fed Futures markets have absorbed the news and repriced. The next FOMC meeting is scheduled for June 12th and markets are still indicating that the committee will hold rates at this meeting. However, in light of last week’s news, according to Fed Funds Futures, markets have gained some confidence that the first rate cut will occur at the September meeting.  The CME’s FedWatch tool now suggests that investors are assigning a 68.3% probability that the first rate cut will occur in September, which is up from 57.4% just a week ago.  Additionally, Fed Funds Futures markets now indicate that investors feel that two rate cuts this year are back on the table. Currently, Fed Funds 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 where we presently sit. Looking at the probabilities for the November & December meetings, each month shows markets are pricing in the likelihood of a rate cut at 80.2% & 90.9% respectively.

This Week’s Notable Earnings

Now that Q1 Earnings Season is largely behind us with 80% of S&P 500 companies having already reported, earnings have come in very strongly with 77% of S&P companies beating earnings estimates. This earnings beat rate of 77% outpaces the 5-year historical average beat rate of S&P 500 stocks of 75.7%. Even with most Q1 reports in the rearview mirror, there are a handful of earnings reports this week that our team will be following. Two major pharmaceutical companies, McKesson Corp. & Vertex Pharmaceuticals Inc. will post their Q1 results this week. Additionally, there is one blue-chip company in Walt Disney Co. and two well-known growth stocks, Uber Technologies & Palantir Technologies, Inc. that will report this week.

  • After the market closes on Monday, Vertex Pharmaceuticals Inc. will report their Q1 results. If VRTX meets analysts’ expectations, it will post YoY Q1 EPS growth of 33.1%. Following this report, on Tuesday after the closing bell, McKesson Corp. will report their first quarter results. MCK is projected to report quarterly EPS that is lower when compared to the previous year’s quarter. However, if expectations are met, MCK’s FY EPS is set to grow at a rate of 6.4%.
    • MCK earnings are expected to come in at $6.34 EPS.
    • VRTX earnings are expected to come in at $4.06 EPS.
  • Prior to the market open on Wednesday morning, blue chip stock Walt Disney Company is slated to report Q1 earnings. DIS stock, up roughly 26% YTD, has staged a nice rally since the beginning of the year, reversing a multi-year decline. The Street’s expectation is that DIS will grow Q1 EPS by 18.3% YoY. Delivering a strong quarter would likely help continue to boost DIS shares higher.
    • DIS earnings are expected to come in at $1.10 EPS.           
  • There are two well-known growth stocks that are on deck to report this week. On Monday evening after the closing bell, Palantir Technologies Inc. is set to report Q1 earnings. PLTR is forecast to post YoY Q1 EPS growth of 60.0%. Coupled with this report, on Wednesday before the market open, Uber Technologies Inc. will report their first quarter numbers. UBER is expected to report Q1 EPS of $0.23 which would be 387.5% higher than Q1 ’23. This quarter is also set to mark the first time that UBER will post positive EPS for four consecutive quarters, an impressive feat for this growth company.
    • UBER earnings are expected to come in at $0.23 EPS.
    • PLTR earnings are expected to come in at $0.08 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