The last trading week of the month, the quarter and the first half of 2024 will greet investors with a major inflation reading, a little bit of corporate earnings and a rush for superlatives to characterize another consensus-busting period for the markets.
Friday morning will bring investors the May reading on the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation measure, which should show that prices on a “core” basis – excluding food and energy – rose last month have increased by 0.1%. This would mark the slowest monthly increase since November last year.
On an annual basis, core PCE inflation should rise 2.6%, the least since March 2021.
Earlier this month, the Consumer Price Index (CPI) showed inflation continuing to cool, a report that reinforced investor expectations that the Federal Reserve would cut interest rates later this year. The Fed’s forecasts published on June 12 show that the central bank expects to cut rates at least once in 2024.
The earnings calendar remains quiet this week and results from FedEx (FDX) on Tuesday, Micron (MU) on Wednesday and Nike (NKE) on Thursday will serve as highlights.
Micron’s report will be closely watched for signs of how robust demand for AI remains in its portfolio. Nike’s report comes at a crucial time for the retailer, which has seen shares fall 11% this year as the company tries to fend off competition in its core athletic footwear market from rivals like Adidas and relative newcomers like On (ONON) and Deckers’s (DECK). brand Hoka.
After market hours, some investor attention is also likely to be paid to Thursday night’s presidential debate between President Biden and former President Donald Trump, the first of two debates currently scheduled between the presumptive nominees.
Another AI rally
Last year, AI trading took the markets by storm. The S&P 500 rose more than 22% and the Nasdaq gained almost 40%.
In 2024, one of the most popular calls on Wall Street was that this rally would broaden, bringing in lagging sectors of the market that were overlooked during last year’s “AI Everything” rally.
However, little has changed during the first months of 2024.
The return gap between the S&P 500 and the Nasdaq has narrowed – the S&P 500 is up over 14% this year, the Nasdaq over 17% – but the Dow Jones continues to lag behind, up only 3.8% so far in 2024 .
Meanwhile, AI-related players like Nvidia (NVDA), Super Micro Computer (SMCI), Broadcom (AVGO) and the aforementioned Micron are among the best performers in the S&P 500 so far this year. AI-related energy projects Vistra (VST) and Constellation (CEG) are also among the best performers in the index year to date.
“The rally in the first half of the year has shown the value of ‘staying the course’,” wrote Jonathan Golub, chief investment strategist at Oppenheimer Asset Management.
“We believe the sharp turnaround in bond yields in late 2023 and the associated rally in equities since then illustrates the importance of investor patience and adherence to diversified portfolio allocations. Equities posted further gains in the second quarter, despite signs of an economic downturn. The stock market rally in the fourth quarter, which continued well into the first half of this year, underlines the need to stay invested.”
4 themes for 2024
In modern markets, profit seasons don’t really end, for better or for worse.
But as Wall Street strategists look to cut first-quarter earnings numbers as second-quarter results come in after the July 4 holiday, Dubravko Lakos-Bujas and JPMorgan’s equity strategy team highlighted four key themes in a note to clients on Friday morning.
The first is of course AI.
AI investments, strategies, and all manner of references peppered earnings calls throughout the quarter. Data from FactSet shows that 199 members of the S&P 500 mentioned AI on their earnings calls through the end of May.
The JPMorgan team noted that they were “constructive around the AI theme by making announcements of additional capital expenditures, new AI models, and updates on the organization’s ongoing refocus on delivering AI products.”
The second theme is weight loss medications.
The best-performing stocks in the S&P 500 this year are primarily focused on AI. Coming in at eighth place with the best gains of 52% to date is Eli Lilly (LLY), manufacturer of the popular weight-loss drugs Mounjaro and Zepbound.
Eli Lilly is also now the eighth largest company in the S&P 500, with a market capitalization of more than $800 billion.
The American consumer is the third important theme of the earnings season.
In particular, what JPMorgan called “increasing caveats on the level of resilience” given consumer pressures on prices, trade-downs and value-seeking behavior, especially among low-income consumers.
As John David Rainey, CFO of Walmart (WMT), told Yahoo Finance in May, “We see that the wallet is still overextended. [customers are] still looking for value.”
Last week, retail sales for May showed sales rising more slowly than expected, while April sales were revised down sharply. At least one economist said this report contributes to that [consumers] are having a bit of a hard time.”
With consumer spending accounting for about two-thirds of U.S. GDP growth, the extent to which consumers cautiously – or boldly – reach into their wallets is always critical to investors.
The final theme mentioned by the JPMorgan team was “expense management,” which, like AI, is a holdover from previous years.
In 2022, as tech stocks were hit by rising interest rates, layoffs began to engulf a sector that had aggressively snapped up talent in 2020-2021. Ongoing cost restructuring in 2023 made investors more enthusiastic about profit margins in 2024.
And management teams still have enough coverage from the broader environment to continue to downsize their workforce or reduce other expenses.
“We also remain focused on long-term efforts to sustainably restructure our cost base,” Sundar Pichai, CEO of Alphabet (GOOG), told investors in late April.
“We continue to manage our workforce growth and align teams to our highest priority areas. This accelerates decision-making, reduces the number of layers and allows us to invest in the right areas.”
At the end of the first quarter, Alphabet employed approximately 10,000 fewer people than a year ago. Earlier this month, the tech giant announced that it had hired a new CFO.
Weekly calendar
Monday
Economic data: Dallas Fed Manufacturing, June (-14.9 expected, -19.4 prior)
Income: There are no significant revenues planned for release.
Tuesday
Economic data: S&P CoreLogic Case-Shiller home prices, April (+0.33% month-over-month earlier); FHFA home price index, April (+0.1% month-on-month earlier); Consumer Confidence Conference Board, June (100 expected, 102 earlier); Richmond Fed production, June (0 previously)
Income: FedEx (FDX), Carnival (CCL), TD SYNNEX (SNX), Progress Software (PRGS)
Wednesday
Economic data: MBA mortgage applications, week of June 21 (+0.9% previously); Sales of new homes, May (+2.5% expected, -4.7% previously)
Income: Micron (MU), BlackBerry (BB), General Mills (GIS), Paychex (PAYX), Levi Strauss (LEVI), Jefferies (JEF), Concentrix (CNXC), AeroVironment (AVAV), MillerKnoll (MLKN)
Thursday
Economic data: First quarter GDP, third estimate (+1.4% annualized expected, +1.3% earlier); Initial unemployment claims, week of June 22 (previously 238,000); Durable goods orders, May (+0.1% expected, +0.6% prior); Pending Home Sales, May (-7.7% Prior): Manufacturing Activity by the Kansas City Fed, June (-2 Prior)
Income: Nike (NKE), Walgreens (WBA), McCormick (MKC), Acuity Brands (AYI), American Outdoor Brands (AOUT)
Friday
Economic data: PCE inflation, month-on-month, May (+0% expected, +0.3% prior); PCE inflation, year-on-year, May (+2.6% expected, +2.7% prior); Core PCE inflation, month-on-month, May (+0.1% expected, +0.2% prior); Core PCE inflation, year-on-year, May (+2.6% expected, +2.8% prior); Personal income, May (+0.4% expected, +0.3% earlier); Personal spending, May (+0.3% expected, +0.2% prior); University of Michigan Consumer Confidence, June (65.8 expected, 65.6 earlier)
Income: There are no significant revenues planned for release.
