Next week investors should see concerns about the debt ceiling dissipate during a shortened holiday week.
This week’s event will be interspersed with the May jobs report due on Friday as the focus shifts away from default concerns in the US and towards the upcoming Fed rate announcement on June 14th.
Late Saturday, President Biden and House Speaker Kevin McCarthy announced a preliminary debt ceiling agreement set to last for two years with lawmakers now set to begin the task of passing that legislation before the June 5 deadline.
Outside of Friday’s jobs report, data on the housing market and consumer confidence will appear alongside scattered corporate earnings reports. US markets will be closed on Monday for Memorial Day.
Uncertainty about the US debt ceiling has played a bigger role in investor conversation than market action in recent weeks, with hype of the current artificial intelligence boom sending tech stocks higher last week. And that conversation should die down this week, paving the way for more AI thought leaders to suck more oxygen into the room.
Chipmaker Nvidia’s (NVDA) earnings propelled the company toward $1 trillion market capitalization and led technology higher, with the Nasdaq Composite (^IXIC) up 2.5% last week while the S&P 500 (^GSPC) added 0.3% and the index Dow (^DJI) was down 1%.
Friday’s May jobs report is expected to show that 180,000 non-farm payrolls were added to the US economy last month with the unemployment rate rising slightly to 3.5%, according to data from Bloomberg.
In April, the US economy added an unexpectedly strong 253,000 nonfarm payrolls, while the unemployment rate fell to 3.4%, its lowest level since May 1969.
This report will be one of several key data points reviewed by the Federal Reserve ahead of the next FOMC meeting scheduled for June 13-14.
Expectations about the central bank’s next move became increasingly mixed as economic data continued to come out stronger than expected. After last week’s inflation data from CME Group showed markets pricing in the better than 50% chance that the Fed will raise interest rates by another 0.25% on June 14; In late April, investors thought the Fed was more likely to cut interest rates than to raise them in June.
“Inflation is running at more than double its target rate of 2% and unemployment is lower than every FOMC participant’s estimate for the longer-term rate,” Bank of America’s US economics team led by Michael Gapin wrote in a note to clients on Friday. .
“We will get another jobs report (June 2nd) and another CPI print (June 13th) before the June decision. And another of each report before the July meeting. Roughly, we think non-farm payrolls growth increases by 200K, which is flat or A decline in the unemployment rate and core CPI of around 0.4% m/m will push the needle towards further tightening.”
On the institutional side, earnings from tech and retail companies will be a focus next week as HP (HPQ), Salesforce (CRM), Okta (OKTA), Dell (DELL), Macy’s (M), and Lululemon (LULU) report quarterly results.
These reports will shed more light on the mixed picture for the consumer this earnings season. Some companies warn of an estimate slowdown while others point to a booming apparel market.
Broadly speaking, S&P 500 companies outperformed Wall Street estimates, even though the index reported its second straight quarter of lower gross profits. According to data from FactSet, the S&P 500’s earnings fell 2.2% during the first quarter while 81 companies gave negative guidance to earnings per share, the highest since the third quarter of 2019.
Investors will also get more earnings results from the AI industry with C3a.i. AI is expected to announce its earnings on Wednesday. Shares of the tech company have been among the biggest beneficiaries of the AI boom, up more than 190% this year so far.
And while AI announcements were already a buzz in the first-quarter earnings season, last week saw investor buzz reach a fever pitch.
On Thursday, Nvidia stock rose nearly 25% as the company provided revenue guidance for the current quarter that was 50% higher than Wall Street estimates. The next day, shares of Marvell Technology (MRVL) rose more than 30% after the company expected revenue attributed to artificial intelligence to double in the next year.
“Trillion dollars of proven global data center infrastructure will shift from general purpose to accelerated computing as companies race to apply generative AI into every product, service, and business process,” Nvidia CEO Jensen Huang said Thursday. “We are significantly increasing our supply to meet the growing demand for it.”
And investors are starting to look at the AI hype as a contributing factor to the overall market rally this year, which has seen the Nasdaq climb 24%.
“US markets are supported by the Al theme, which tends to increase price sensitivity even further,” Citi strategists wrote in a note to clients last week. “This topic is of course very specific to the US market, and therefore we expect an outperformance in the US when the Fed winds up.”
Citi added, “While price action for AI-related stocks has clearly been intense especially at a time when cash use cases are still ahead, and with barriers to entry not very high, we still expect it is too early to fade before it develops.” Artificial intelligence far enough to disappoint expectations.”
And with Fed expectations far from reaching a consensus of late, it looks like the “safest” place for investors to hide in summer 2023 might be in the AI hype train.
Bank of America Global Research’s Michael Hartnett wrote Friday that “no buy-in in the macro narrative of 2023 means little buy-in in the new micro-narrative of AI.”
Weekly calendar
Monday
Markets are closed for Memorial Day.
Tuesday
economic data: Dallas Fed Manufacturing Activity, May (-17 expected, -23.4 prior); FHFA Home Price Index, March (+0.2% expected, +0.5% prior); S&P CoreLogic Case-Shiller, 20-City Composite, MoM, March (-0.05% expected, +0.06% prior); S&P CoreLogic Case-Shiller 20-City Composite, YoY, March (-1.70% expected, +0.36% prior); Conference Board Consumer Confidence, May (99.1 expected, 101.3 prior)
Earnings: Box (BOX), HP Inc. (HPQ), Hewlett Packard Enterprise (HPE), U-Haul (UHAL)
Wednesday
economic data: MBA Mortgage Applications (-4.6% previously); MNI Chicago PMI, May (47.0 expected, 48.6 prior); JOLTS Jobs, April (9.48 million forecast, 9.59 million ex); Federal Reserve Beige Book
Earnings: Advance Auto Parts (AAP), Capri Holdings (CPRI), Chewy (CHWY), Crowdstrike (CRWD), C3.ai (AI), Nordstrom (JWN), Okta (OKTA), Purestorage (PSTG), Salesforce (CRM)
Thursday
economic data: Challenger Job Cuts, YoY, May (+175.9% Previous); unit labor costs, first quarter, final (+6.2% forecast, +6.3% prior); Nonfarm Productivity, Q1, Final (-2.6% expected, -2.7% prior); Initial Weekly Jobless Claims (235,000 expected, 229,000 previously)
Earnings: Broadcom (AVGO), Dell Technologies (DELL), Dollar General (DG), Five Below (FIVE), Hormel Foods (HRL), Land’s End (LE), Lululemon (LULU), Macy’s (M), Zscaler (ZS)
Friday
economic data: Nonfarm Payrolls, April (+180,000 expected, +253,000 prior); April Unemployment Rate (3.5% expected, 3.4% prior); Average Hourly Earnings, MoM, May (+0.3% expected, +0.5% prior); Average Hourly Earnings, YoY, May (+4.4% expected, +4.4% prior); Average Weekly Hours Worked, May (34.4 predicted, 34.4 previous); Labor Force Participation Rate, May (62.6% expected, 62.6% previously)
Earnings: no Remarkable profits.
Monday
Markets are closed for Memorial Day.
Tuesday
economic data: Dallas Fed Manufacturing Activity, May (-17 expected, -23.4 prior); FHFA Home Price Index, March (+0.2% expected, +0.5% prior); S&P CoreLogic Case-Shiller, 20-City Composite, MoM, March (-0.05% expected, +0.06% prior); S&P CoreLogic Case-Shiller 20-City Composite, YoY, March (-1.70% expected, +0.36% prior); Conference Board Consumer Confidence, May (99.1 expected, 101.3 prior)
Earnings: Box (BOX), HP Inc. (HPQ), Hewlett Packard Enterprise (HPE), U-Haul (UHAL)
Wednesday
economic data: MBA Mortgage Applications (-4.6% previously); MNI Chicago PMI, May (47.0 expected, 48.6 prior); JOLTS Jobs, April (9.48 million forecast, 9.59 million ex); Federal Reserve Beige Book
Earnings: Advance Auto Parts (AAP), Capri Holdings (CPRI), Chewy (CHWY), Crowdstrike (CRWD), C3.ai (AI), Nordstrom (JWN), Okta (OKTA), Purestorage (PSTG), Salesforce (CRM)
Thursday
economic data: Challenger Job Cuts, YoY, May (+175.9% Previous); unit labor costs, first quarter, final (+6.2% forecast, +6.3% prior); Nonfarm Productivity, Q1, Final (-2.6% expected, -2.7% prior); Initial Weekly Jobless Claims (235,000 expected, 229,000 previously)
Earnings: Broadcom (AVGO), Dell Technologies (DELL), Dollar General (DG), Five Below (FIVE), Hormel Foods (HRL), Land’s End (LE), Lululemon (LULU), Macy’s (M), Zscaler (ZS)
Friday
economic data: Nonfarm Payrolls, April (+180,000 expected, +253,000 prior); April Unemployment Rate (3.5% expected, 3.4% prior); Average Hourly Earnings, MoM, May (+0.3% expected, +0.5% prior); Average Hourly Earnings, YoY, May (+4.4% expected, +4.4% prior); Average Weekly Hours Worked, May (34.4 predicted, 34.4 previous); Labor Force Participation Rate, May (62.6% expected, 62.6% previously)
Earnings: no Remarkable profits.
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