Despite last week marking the second consecutive week that all three major averages finished down, there are still good signs of wide breadth across the market. Across the S&P 500 index, 76% of stocks are still trading above their 200-Day moving average. The Equal Weight S&P 500 index (RSP) made a new 52-Week High last week. Additionally, the NYSE Advance Decline index made a new higher low and is trending back up as well. Last week’s two inflation reports had investors somewhat spooked as they each came in slightly hotter than expected. They created some doubt for the market about whether the Fed’s fight against inflation is truly over yet. This new uncertainty coupled with this week’s Fed meeting provided reason enough for the market’s recent run up to take a breather and cool off temporarily. Investors will likely be in holding pattern pending the post-meeting Fed commentary to see if the FOMC will stick with their current rate cut guidance or if last week’s inflation data may have altered their course.  

The headlining market event this week no doubt will be Wednesday’s Fed meeting and their accompanying policy decision and messaging about future policy decisions. This event is sure to draw the attention of the markets. Should any uncertainty be introduced from this event, expect the markets to react. Also due up this week are a handful of highly important reports for the U.S. housing sector, namely the U.S. homebuilders. A few of these notable reports are the Home Builder Confidence Index (HMI), as well as new Housing Starts, and new Building Permits. Each of these reports are crucial indicators about the current health and outlook for the U.S. homebuilding sector. Additionally, they provide some insights into the strength of the U.S. consumer. The other major macro report due this week is initial jobless claims which has been a compelling indicator regarding the underlying strength of the U.S. job market & economy.

  • Home Builder Confidence Index (HMI) – On Monday morning, we will get the HMI report for the month of March. The HMI report serves as a confidence gauge for the U.S. home builder industry. The HMI index has been trending upward over the past few months after seemingly troughing in November at 34.
    • The consensus prediction for March is that the HMI index will come in at 48. This report follows the February report of 48.
  • Housing Starts & Building Permits – Following Monday’s HMI report, on Tuesday morning, investors will get the latest reads from the Census Bureau on new housing starts as well as new building permits issued. 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 February are expected to come in at 1.45 million & 1.5 million respectively.
  • 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. This trend downward is an indicator of strength for the U.S. economy. As long as initial claims remain consistently below 240K, this will be a sign of continued health in the labor market.
    • Thursday’s report is expected to show 214K new initial claims, which is marginally higher than last week’s number of 209K.
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Federal Reserve Watch

Last week featured relatively little action from the FOMC and its members as they were in the quiet period prior to this week’s meeting. On Wednesday afternoon once the Fed’s meeting has concluded, Fed Chair Powell will deliver the FOMC’s latest monetary policy decision. The committee is widely expected to hold policy rates at current levels. However, there is great interest in Powell’s press conference to see if he provides any clarity on upcoming policy decisions. Fed members have been consistent that they intend to reduce rates, yet it will likely be later in the year and the committee is in no rush to do so. Investors will be keyed in to see if Powell reaffirms this message.  

  • On the back of last week’s slightly hotter than expected CPI & PPI reports coupled with the Fed’s recent messaging, this has moved investor’s expectations on future Fed decisions. The CME Group’s FedWatch Tool now projects a 98.0% probability that the Fed will maintain current policy rates at the meeting this week.
  • Looking ahead to the next few FOMC meetings, Fed Funds Futures are now indicating that the first policy rate cut will likely not come until the June meeting. The CME’s FedWatch tool projects a 58.8% probability that the FOMC will reduce rates at June’s meeting. Despite this being the current majority opinion, this probability has dropped almost 12% compared to one week ago. This indicates fading confidence that the Fed will actually cut at the June meeting.

This Week’s Notable Earnings

Now with much of Q4 earnings season in the rearview mirror, earnings came nicely in with roughly 73% of S&P 500 companies posting upside earnings surprises. Still there are a handful of notable companies who have not yet reported their fourth quarter earnings. This week, two companies from the technology sector, Micron Technology, Inc. & Accenture Ltd. will post their earnings. Joining them, a duo of top athletic wear retailers will report their Q4 earnings when we hear from Nike, Inc. & Lululemon Athletica Inc. Finally, transportation giant, FedEx Corp. will round out this week’s significant reports.

  • This week two major tech firms engaged in different types of business are due to report Q4 earnings. Despite Micron Technology, Inc.’s strong stock performance recently, the company is expected to post its sixth consecutive quarter of losses when MU reports earnings after the close on Wednesday. Accenture Ltd. will post their Q4 results on Thursday morning prior to the opening bell. This year ACN is expected to grow full-year earnings by 5.4%.
    • MU earnings are expected to come in at $-0.26 EPS.
    • ACN earnings are expected to come in at $2.66 EPS.
  • Retail sector investors have another big week in front of them as two major athletic wear retailers’ earnings are on deck this week. On Thursday after the closing bell, both Nike, Inc. & Lululemon Athletica Inc. will report their Q4 earnings. NKE is expected to post a 6.3% decrease in YoY quarterly earnings while LULU is forecast to increase YoY quarterly earnings by 13.6%.
  • NKE earnings are expected to come in at $0.74 EPS.
    • LULU earnings are expected to come in at $5.00 EPS.
  • A major company in the transportation sector will report fourth-quarter earnings on Thursday after the close when we hear from FedEx Corp. FDX is expected to report modest YoY quarterly earnings growth of 3.8%. However, if FDX can meet analysts’ full year expectations they are forecast to grow full year earnings this year by 17.45%.
    • FDX earnings are expected to come in at $3.54 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