What To Watch This Week

The markets were delivered good economic news last week when Friday’s PCE reportwas in line with expectations, posting the lowest YoY increase since April ’21. Also, Q4 GDP was revised up to 3.4% signaling that the economy grew more than previously thought. The solid economic growth numbers along with strong consumer sentiment were bullish catalysts for the markets and drove the Dow Jones & S&P 500 indices to make new All-Time closing highs to end the week. The market’s bullish rally also saw further signs of broadening out and sector rotation as 8 of the S&P 500 sectors, not including Technology, finished the week higher, led by Energy, Utilities, & Health Care. Furthermore, the Russell 2000 index finished the week at a fresh 52-Week high. Now, with nearly 84% of stocks trading above their 50-Day moving average, this is a sign that in the short term, stocks have likely become a bit too overbought, and a mild pullback is expected. However, overall, these are all signs of a robust and strong stock market.

This week’s market moving news that our team will be watching closely will come in the form of macroeconomic data, namely the BLS’s latest jobs report featuring the Nonfarm Payrolls & Unemployment Rate. These two metrics will be factors in the Feds’ future policy decisions as they are direct evidence for the health of the U.S. economy and labor market. Additionally, we will be looking out for February’s Consumer Credit number, which is expected later in the week. In what will be a relatively light earnings week, there are two reports that we will be following when Levi Strauss & Co. & RPM International, Inc. post their Q4 earnings. Finally, there will be a heavy dose of Fed speak this week, as each day will feature multiple Fed member speaking events. These will draw close attention to hear each member’s personal opinions regarding inflation and future policy moves.

  • 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 200K jobs for the month of March. In February, the U.S. added 275K jobs, well-above the expectation of 200K.
  • 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 March was 3.9%. This would be on par with February’s number of 3.9%.
  • 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 February. This would follow January’s increase of $19.5 billion which blew through the expectation of $9.25 billion.
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Federal Reserve Watch

Last week featured some hawkish comments from Fed members as memberBostic expressed his opinion that only one policy rate cut would be appropriate this calendar year. Additionally, Fed member Waller communicated that he needs to see a larger body of evidence that inflation is cooling for good before he is comfortable with reducing policy rates. These comments were made in the backdrop of the previous week’s ‘dot plot’ release which signaled the FOMC is forecasting three rates cuts this year. Last week’s PCE number was good and in line with expectations, this is the kind of evidence the committee is looking for. But it is clear the FOMC still wants to see more consistent data confirming inflation is indeed moving in the right direction. This week will feature numerous speaking engagements for FOMC members, including Fed Chair Powell. Expect a good deal of messaging from the Fed members this week.

  • The next FOMC meeting on the calendar is set for May 1st. Looking at current Fed Funds Futures, the committee is forecast to leave rates unchanged at this meeting. If the FOMC committee takes this path as their policy decision, this would leave five meetings in this calendar year for them to accomplish the three rate cuts that they have communicated.
  • Looking past the upcoming FOMC meeting, Fed Funds Futures are now indicating that the first policy rate cut will likely not come until either the June or July meeting. The CME’s FedWatch tool now projects a 63.6% probability that the FOMC will cut at June’s meeting. However, this probability has decreased from one week ago. The odds of the first cut occurring in July have begun to grow, now standing at 77.9%.

This Week’s Notable Earnings

On the earnings front, this week will again be mostly tame as there are only a few companies Q4 earnings reports still outstanding before the following week ramps up into the first week of ’24 Q1 earnings reports. Next week the earnings news will rev up as many of the major financials will begin to post their Q1 quarterly numbers. Despite the relatively quiet earnings news this week, there are still a few reports that our team is going to be watching with a close eye. Well-known retailer Levi Strauss & Co. is set to report their Q4 results. Additionally, a lesser-known name, a building & construction materials producer, RPM International, Inc., is set to post their earnings later in the week.

  • On Wednesday after the closing bell, Levi Strauss & Co. will post their latest quarterly earnings. If LEVI can meet analysts’ expectations for FY 2024, this will mark a rebound from last year’s earnings decline. If LEVI can post an upside earnings surprise, this can help provide more insight into the U.S. consumer and whether they are still spending at a strong rate.
    • LEVI earnings are expected to come in at $0.21 EPS.
  • RPM International, Inc., is a mid-cap sized company in the materials production sector. RPM is set to report their Q4 earnings on Thursday during the pre-market. With continued strength in the U.S. homebuilding market, this provides a strong tailwind to their business and should give a boost to their numbers. RPM is expected to report 29.7% YoY growth in their Q4 earnings.
    • RPM earnings are expected to come in at $0.48 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

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