Markets This Week, 5/29-6/02, 2023: Between a Rock and a Hard Place

Economy and Markets: The Week Ahead

The main theme of this week will still be the debt ceiling issue – however, in contrast to the previous two weeks, now there’s much more optimism that the U.S. lawmakers will reach an agreement, saving the country from the disgrace of default.

Yesterday, President Biden and House Speaker McCarthy reached a preliminary deal. They will raise the debt ceiling for two years while limiting non-defense spending.  

The debt-ceiling agreement will have to be passed by Congress by June 5^th, the updated “x-day,” according to Treasury Secretary Yellen. The legislation is expected to meet strong resistance from hardliners on both sides of the aisle. If lawmakers fail to ratify the framework agreement by this date, the department will run out of means to make payments on the country’s debt.

Although the date of the potential default has been pushed further by four days, the sense of overwhelming urgency persists. The parties are under mighty pressure, if not from the possible national humiliation or the default’s economic impact, then from the warnings of a rating downgrade issued by both Moody’s and Fitch.

If the U.S. Doesn’t Default, the Fed Will Have to Lift?

Meanwhile, the Federal Reserve is under pressure as well. Q1 2023’s GDP growth was stronger-than-forecast; personal consumption is surging; and the job market is still as tight as ever. Moreover, Core PCE, the Fed’s preferred inflation gauge, rose at a faster-than-expected clip in April, indicating that the price pressures are still running hot despite the central bank’s 5% rate increases in the past 14 months.

All that data is adding up to push the Fed to abandon its previous intention of a pause in their next meeting; the markets are now seeing a 50% chance of a hike. If the FOMC members decide on a pause in June, they may well hike again (and, if data warrants it, by more than 0.25%) in July. The policymakers will be watching the data coming in in the next days, including the payroll numbers, to gauge whether they can afford to let the economy have a breather before they pull the rate lever up again.

Of course, all that is true if the debt ceiling deal gets Congress’ approval, otherwise all bets are off. If the U.S. declares a default, there will be chaos in the financial system, a lot of economic damage, and a stock-market crash. But since a default has never happened before, no one knows what exactly will happen. Hopefully, we’ll never find that out.

Regardless, we are still traversing one of the most unpredictable patches in stock market history. With this level of uncertainty, investors are advised to base their decisions on trustworthy data and analysis.

Upcoming Earnings and Dividend Announcements

The reporting season is drawing to an end, but some important reports are still coming out this week.

The most anticipated releases this week include Hewlett Packard Enterprise (HPE), Salesforce (CRM), C3.ai (AI), Broadcom (AVGO), Lululemon Athletica (LULU), Dell Technologies (DELL), Dollar General (DG), and Macy’s (M).

Companies’ reporting dates, consensus EPS forecasts, past data, analyst ratings, and price targets can be found on the TipRanks Earnings Calendar.

This week’s Ex-Dividend dates are coming for the payouts of eBay (EBAY), Goldman Sachs (GS), Home Depot (HD), Lockheed Martin (LMT), Qualcomm (QCOM), Bank of America (BAC), General Motors (GM), PepsiCo (PEP), Nike (NKE), Barrick Gold (GOLD), and other dividend-paying firms.

Companies’ Ex- and Payment dates, together with their analyst ratings and price targets, can be found on the TipRanks Dividend Calendar.

Upcoming Economic Calendar Events

This week we’ll see published several important reports, in both the U.S. and global markets.

The U.S.: On Tuesday we’ll get a glimpse into the state of the housing market, with March’s FHFA Housing Price Index and S&P/Case-Shiller Home Price Indices coming out on that day. We’ll also receive a very important data point on the same day, May’s Consumer Confidence Index. On Wednesday we’ll receive May’s Chicago PMI report. Thursday will be busy with important data on May’s ADP Employment Change, Q1 Non-farm Productivity, and Q1 Unit Labor Costs, as well as May’s ISM Manufacturing PMI. Friday will be even busier with the all-important May jobs reports, including Nonfarm Payrolls, Unemployment Rate, Average Weekly Hours, and Average Hourly Earnings.

Elsewhere, this week we’ll see several important reports on the state of Japan’s economy, such as April’s Unemployment Rate, Retail Sales, and preliminary Industrial Production. In the Eurozone, we’ll receive preliminary reports on May’s Consumer Confidence and Harmonized Index of Consumer Prices (HICP). 

Current and scheduled economic reports, Fed statements, and other releases, as well as their level of impact on stock markets, can be found on the TipRanks Economic Calendar.

Equities – Review of Last Week’s Performance

This past week began with declines and closed with a surge, with almost all moves driven by the developments of the debt ceiling negotiations. The markets’ disposition swung sharply to the upside as lawmakers conveyed optimism that the deal is near done and the U.S. will avoid a default.   

Nvidia (NVDA) added to the market’s optimism on Thursday; its stock surged almost 26% on the week, taking the company’s market cap within touching distance of $1 trillion. The exuberance spread to other chipmakers, such as Taiwan Semiconductor (TSM) and Advanced Micro Devices (AMD), and to some of its partners and suppliers. The AI-powered rally in the chipmakers’ shares propelled the outperformance of the tech-centered Nasdaq 100 (NDX) and Nasdaq Composite (NDAQ), with weekly gains of 3.1% and 2%, accordingly.

Meanwhile, the S&P 500 (SPX) finished the week up 0.3% after the end-week rally helped reverse losses made in the first three days of trading. The only major index to close in the red was the Dow Jones Industrial Average (DJIA), which fell 0.6% on the week as energy producers’ underperformance weighed on the blue-chip index.

The technology sector’s gains, coupled with the debt-ceiling optimism, outweighed the effects of the news on the economy, stealing the market’s attention. An upward revision to U.S. economic growth in Q1 2023, coupled with stronger-than-expected consumer spending and inflation data, dented expectations for a rate pause next month.     

Stock Highlights of the Past Week

This past week the markets reacted to several earnings reports, with the most prominent of them being, of course, Nvidia. Below are the most noteworthy reports of the past week:

» Nvidia (NVDA) saw its stock surge to the cusp of a $1 trillion market cap, after the chip giant reported a beat on earnings and revenues, and offered blowout guidance for the current quarter, as the company expects the already-robust demand for AI chips to continue surging.

» Lowe’s (LOW) slid despite beating consensus on earnings and revenues after the company issued a muted outlook for FY23.    

» Palo Alto Networks (PANW) beat expectations on earnings and reported revenues in line with expectations; the stock rose on upbeat earnings guidance for the current quarter and the full year 2023.

» Analog Devices (ADI) saw its shares drop despite outperforming estimates on revenue and earnings, as the circuit maker’s revenue guidance for the current quarter was noticeably lower than analyst predictions.

» Snowflake (SNOW) beat estimates on earnings and revenues; however, the company performed a second consecutive downgrade to its fiscal year outlook, spooking investors.

» Costco (COST) reported mixed results, beating earnings estimates but coming short on revenues.  

» Dollar Tree (DLTR) saw its stock falling after the discount retailer trimmed its EPS forecast for FY23; Q1 sales beat estimates, but EPS disappointed.

» Marvell Technology (MRVL) shares soared 45% on the week after the company reported consensus-beating results on revenue and EPS and projected that AI-driven demand will propel up sales and earnings in the current fiscal year.   

» » Our Star of the Week is Valero Energy (VLO); the company’s stock bucked this week’s strong downtrend in the energy sector, rising 2.3% while its peers logged in losses. The transportation fuel manufacturer has been one of the most searched stocks lately; it got a boost as Goldman Sachs (GS) mentioned the stock among 10 high-dividend call-buying ideas along with giants like Lockheed Martin (LMT), Chevron (CVX), and Pfizer (PFE).

Major Economic Events of the Past Week

The U.S.

» May’s S&P Global Manufacturing PMI (preliminary) dropped to 48.5 from April’s reading of 50.2; it was expected to decline to 50. S&P Global Services PMI (preliminary) jumped to 55.1 from April’s reading of 53.6; it was expected to decline to 52.6.

» April’s Chicago Fed National Activity Index (CFNAI) rose to 0.07 from March’s -0.37; it was expected to increase to -0.02.

» Q1 2023 GDP Growth Annualized (second reading) was 1.3%, versus the initial estimate of 1.1%; total growth was revised upwards thanks mostly to an upward revision to private inventory investment and a higher-than-estimated consumer spending.

» Initial Jobless Claims for the week ending May 19^th came in at 229K versus the expected 245K. Continuing Jobless Claims for the week ending May 12^th were at 1.794M, lower than the expected 1.800M.

» April’s Core Personal Consumption Expenditures (Core PCE) rose 4.7% year-on-year, versus the expectations of no change from March’s 4.6%.

» April’s Durable Goods Orders rose 1.1% from March’s +3.3%, versus the expected decrease of 1%.

» April’s Personal Income rose 0.4% from March’s +0.3%, in line with expectations. Personal Spending rose 0.8%, twice as much as was expected, from March’s +0.1%.

» May’s Michigan Consumer Sentiment Index rose to 59.2 from April’s 57.7.

» May’s University of Michigan’s 5-year Consumer Inflation Expectations declined to 3.1% from April’s 3.2%.  

Eurozone

May’s Consumer Confidence (preliminary) came in at -17.4, little changed from April’s -17.5.

May’s Manufacturing PMI (preliminary) fell to 44.6 from April’s 45.8. Services PMI (preliminary) jumped to 55.9 from April’s 56.2. 

The U.K.

April’s CPI rose 8.7% year-on-year versus March’s 10.1%.

May’s Manufacturing PMI (preliminary) fell to 46.9 from April’s 47.8. Services PMI (preliminary) declined to 55.1 from April’s 55.9.