This Short Week-Tech Boosts Markets, PCE Inflation in Focus

Last week we saw each of the three major indices make new all-time highs, including new all-time closing highs for the S&P 500 & Nasdaq.Despite the new all-time highs, only 2 of 11 S&P 500 sectors finished the week higher. The strength in markets was largely concentrated in a select group of technology stocks that got a boost from NVDA’s blowout Q1 earnings report. This explains the outsized performance in the tech-heavy Nasdaq index over the past week. Even though most of the market outside of the Technology sector took a bit of a breather last week, the state of the bull market is still quite strong. As of Friday’s close, 71.2% of S&P 500 stocks are trading above their 200-Day moving average indicating that a significant segment of the index is still in a longer term uptrend. Additionally, the NYSE Advance/Decline index made a new high in the past week, signaling that buying pressure is still strong and there is broad participation in the market. Now that the majority of the market experienced a cooling off last week, stocks are not at the short-term overbought levels we saw entering the week. Given these factors coupled with better than expected Q1 earnings results and most S&P stocks finishing the week strongly, this sets up the market nicely moving forward, especially if we can make some progress on the inflation front over the next few months.

Following last week’s major market events that led the indices to each make new highs, this week brings some fresh data that investors will be eager to dive into. Expected this week are a number of fresh macroeconomic reports beginning with the Conference Board’s monthly update on the Consumer Confidence Index. Following this will be the first revision for U.S. Q1 GDP and then the most highly anticipated event of the week will be Friday’s release of the April PCE inflation report. On the earnings front, even with most of Q1 earnings in the rearview mirror there are a few companies on deck to report this week that are on our team’s radar. Some of the notable companies set to report this week are Costco Wholesale Corp. & Dell Technologies.

Consumer Confidence Index – Each month The Conference Board releases their Consumer Confidence Index which is formed by surveying consumers about their current attitudes regarding inflation expectations, trajectories of stock prices, and interest rates among other things. The purpose of this index is to quantify the consumer’s current attitudes so that you can identify trends when they emerge. These trends are important to identify because consumer spending accounts for roughly 2/3 of U.S. GDP and consumer’s current feelings heavily influence their spending habits.
- The estimate is that Tuesday’s Consumer Confidence Index report for May will come in at 96, which is slightly lower than April’s number of 97. Since the start of the year this index has drifted lower from January’s number of 110.9.

Gross Domestic Product (GDP) – On Thursday morning we will get the first revision to the Bureau of Economic Analysis’ Q1 U.S. GDP estimate. For each quarterly GDP report the BEA first releases two estimates before posting their final quarterly GDP report. The initial Q1 estimate was released in late April and missed significantly to the downside and showed a steep drop off from the prior quarter.
- The ‘initial’ Q1 GDP estimate showed that U.S. GDP increased by 1.6%. Forecasts are that Thursday’s release of the first revised estimate will show Q1 GDP only increased by 1.2%, less than the initial estimate.

Personal Consumption Expenditures Price Index (PCE) – To close out the trading week, on Friday, the new PCE & Core PCE data for the month of April will be released. The PCE price index data is gathered to track the costs that U.S. consumers are paying for goods and services and to document the change in these costs over time. Core PCE is a pared down measure that excludes more volatile categories like Food & Energy and this is the index the Fed watches the most closely.
- April’s YoY Core PCE number is expected to come in at 2.8%, which would be in line with March’s report of 2.8%. With recent uncertainties regarding the trajectory of inflation, investors will be anxiously awaiting the results of this release.

Beware: Many traders are chasing the wrong solution to steady income. Click here to read the free guide that shows the 4 keys to potential profits.

Federal Reserve Watch

In the past week the ‘Fed Minutes’ from the May FOMC meeting were released.The transcripts confirmed that Fed members still have ongoing concerns regarding the lack of further progress on decreasing inflation. This validated the rhetoric that we have heard from various Fed members since the May meeting. At the last meeting, 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. With the next FOMC meeting just around the corner, Fed members continue to seemingly confirm that there will be no more rate hikes in this cycle and that the next ‘move’ will be a cut. The question remains about when this first cut will occur to kick off the cutting cycle. One Fed member provided guidance this week that he would not be comfortable lowering rates until he had seen “several consecutive months” worth of positive inflation data. It seems clear that the cutting cycle will not begin until the FOMC has seen overwhelming data that inflation has been tamed and this guidance may have provided the ‘measuring stick’ that investors should be looking for.

The next FOMC meeting is scheduled for June 12^th, however, markets are still indicating that the committee will hold rates at this meeting. After this past weeks’ worth of data, Fed Funds rates have shifted and now signal that investors are assigning roughly a 50/50 chance that the Fed will either cut or hold rates steady at the September meeting. Coming into last week, Fed Funds Futures were favoring a rate cut at 64.8%, so this marks a sharp drop in a week’s time. 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 5.00%-5.25% which would be 25 basis points lower than status quo. This indicates that at present, the market is anticipating only one rate cut 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 63.1% & 80.1% respectively, a notable decrease from one week prior.

This Week’s Notable Earnings

With 96% of S&P 500 companies Q1 earnings reports behind us, including arguably the most important report of theseason in Nvidia, much of the pressure for this earnings season has lifted. It has turned out to be a strong reporting season with 78% of S&P 500 companies having beaten EPS estimates. This week there are a handful of earnings reports that we will be watching closely. The first major report this week will be for discount club store operator, Costco Wholesale Corp. Next, a couple of Tech companies that are closely connected to the ‘A.I. trade’ in Salesforce, Inc. & Dell Technologies, Inc. are slated to report their Q1 results. Finally, there is a basket of discretionary retailers including Dick’s Sporting Goods Inc. & Abercrombie & Fitch Co., that are scheduled to report this week.

On Thursday, once the market closes, Costco Wholesale Corp. will report their Q1 earnings. According to analyst’s projections, COST is expected to post YoY Q1 EPS growth of 26.3%. COST has rallied nicely into this week’s earnings report, so investors are likely expecting strong results.
- COST earnings are expected to come in at $3.70 EPS.

After the closing bell on Wednesday, enterprise software giant Salesforce, Inc. is set to report their Q1 earnings results. Following them, on Thursday Dell Technologies Inc. will report their latest quarterly results. If CRM & DELL can meet Wall Street’s expectations for this year, they are expected to grow FY EPS by 18.7% & 7.4% respectively. Each of these companies are expected to be among those that will be able to monetize A.I. early on during this technological transition.
- CRM earnings are expected to come in at $2.38 EPS.
- DELL earnings are expected to come in at $1.26 EPS.

Finally, to close out the earnings to watch this week are a handful of various retailers. Before the opening bell on Wednesday, both Dick’s Sporting Goods Inc. & Abercrombie & Fitch Co. will report their Q1 results. Then later in the day after the market closes, American Eagle Outfitters, Inc. will post their latest Q1 numbers. To wrap up this group, on Thursday after the closing bell, Ulta Beauty, Inc. will report their first quarter earnings. Investors will watch this diverse group of retailer’s reports not only for the actual company results but also for any potential read-throughs into the health of the U.S. consumer.
- DKS earnings are expected to come in at $2.95 EPS.
- ANF earnings are expected to come in at $1.74 EPS.
- AEO earnings are expected to come in at $0.28 EPS.
- ULTA earnings are expected to come in at $6.23 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.

Thanks,