• Fed rate cut, FOMC dot plot and Powell commentary will be the focus this week.
• Micron offers significant upside potential, supported by robust earnings growth and strong demand for its AI-related products.
• Nike faces mounting challenges, with declining revenues, a cautious outlook and weak consumer demand pointing to further downsides for its stock price.
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U.S. stocks closed mostly lower on Friday, with the Dow Jones Industrial Average posting its longest losing streak since 2020, as investors priced in the possibility that the Federal Reserve would cut rates more slowly next year.
This week, the blue-chip Dow Jones fell 1.8%, the S&P 500 fell about 0.6%, while the tech-heavy Nasdaq Composite was down about 0.3% to secure its fourth straight week of gains.
Source: Investing.com
The upcoming blockbuster week is expected to be busy, filled with several market-moving events, including the Fed’s last monetary policy meeting of 2024. An official statement is expected Wednesday at 2:00 PM ET. Fed Chairman Jerome Powell will speak at 2:30 PM ET.
With a 25 basis point rate cut assured, investors will focus on the central bank’s rate guidance amid indications that Powell could signal a pause in policy easing.
Meanwhile, on the economic calendar, the most important will be Tuesday’s US retail sales report, which will shed further light on the health of the economy. The personal consumption expenditure price index for November, due Friday, will also be closely watched.
Source: Investing.com
Elsewhere on the earnings slate, only a handful of company results are expected, including Nike ( NYSE:NKE ) , FedEx ( NYSE:FDX ) , Micron Technology ( NASDAQ:MU ) , Lennar ( NYSE:LEN ) , General Mills ( NYSE:GIS ) and Carnival (NYSE:CCL) as reporting season draws to a close on Wall Street.
Regardless of which direction the market moves, below I highlight one stock that is likely to be in high demand and another that could see new downside. However, remember that is my time frame just now for the coming week, Monday December 16 to Friday December 20.
Micron is poised for a solid week as the memory chip maker prepares to report its fiscal first-quarter results on Wednesday at 4:05 PM ET. A call with President and CEO Sanjay Mehrotra is scheduled for 5:00 PM ET.
According to the options market, market participants expect a significant swing in MU stock after the update drops, with a possible implied move of +/-11.7% in either direction. Earnings have been the catalyst for outsized swings in stock prices this year, with MU soaring nearly 17% when the company last reported quarterly earnings in September.
Wall Street expects strong profits thanks to robust demand for its High-Bandwidth Memory (HBM3E) chips, which are essential for AI and cloud computing applications.
Adding to the bullish sentiment, 16 of the 24 analysts surveyed by InvestingPro have upgraded their earnings estimates over the past three months.
Source: InvestingPro
Micron is expected to earn $1.77 per share, reversing a sharp loss of $0.95 per share a year ago, signaling a significant recovery after a challenging period in the memory market. Revenue is expected to grow 83.9% annually to $8.70 billion, driven by sales of high-bandwidth memory devices to data centers running AI applications.
The Boise, Idaho-based company plays a critical role in driving advances in AI, cloud computing and 5G connectivity with its innovative DRAM and NAND products.
Looking ahead, I believe Micron management will provide solid guidance for the current quarter, reflecting robust memory demand from cloud providers as growth prospects in artificial intelligence remain strong. Micron’s breakthrough HBM3E technology, a key enabler for AI workloads, is expected to be a cornerstone of its growth strategy.
MU stock ended Friday’s session at $102.50. At current levels, Micron has a market value of $113.7 billion. The shares, which hit an all-time high of $157.54 on June 18, are up 20.1% this year.
It should be noted that Micron shares remain undervalued according to the InvestingPro Fair Value model and could see an increase of 8.5% to $111.22.
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In contrast, Nike, the global athletic apparel giant, is facing significant headwinds this week as the company prepares to release its second-quarter results on Thursday at 4:15 PM ET.
Despite strong brand recognition, the company is grappling with declining consumer demand for sportswear and footwear, as well as supply chain challenges.
According to the options market, traders are pricing in a +/-7.7% swing in either direction for NKE stock after the IPO. Notably, shares have fallen over the past four quarters following earnings reports, and continued problems point to further downside.
Analysts have cut their profit estimates due to weakening operating margins and slowing growth in North America and China, two of Nike’s biggest markets.
Source: InvestingPro
Nike is expected to post a 37.8% decline in adjusted earnings per share to $0.64, with revenue expected to decline 9.7% from the year-ago period to $12.1 billion.
The sneaker giant has faced mounting challenges in recent quarters, dealing with declining demand for athletic footwear and apparel in a weakening macroeconomic environment.
The focus will be on newly reappointed CEO Elliott Hill’s plans for a turnaround after the company shifted to a direct-to-consumer model, which has struggled to offset declining wholesale revenues.
NKE stock, which fell to a 2024 low of $70.75 on Aug. 5, closed at $77.25 on Friday. At its current valuation, the Beaverton, Oregon-based sportswear retailer has a market cap of $115 billion. Shares are down 28.8% this year.
It should be noted that Nike has a below-average InvestingPro ‘Financial Health’ score of 2.4 out of 5.0 due to ongoing concerns about weakening gross profit margins and spotty revenue growth.
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Revelation: As of this writing, I am long the S&P 500 and the Nasdaq 100 through the SPDR® S&P 500 ETF (SPY) and the Invesco QQQ Trust ETF (QQQ). I am also long the Invesco Top QQQ ETF (QBIG), Invesco S&P 500 Equal Weight ETF (RSP) and VanEck Vectors Semiconductor ETF (SMH).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessments of both the macroeconomic environment and companies’ financial condition.
The views expressed in this article are solely the opinions of the author and should not be construed as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.
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