Markets This Week, 6/12-6/16, 2023: What Bull Market?

Economy and Markets: The Week Ahead

The main theme of this week will be, of course, the Federal Reserve’s two-day policy meeting. Will the Fed pause for the first time in 15 months?

If the Fed’s decisions are purely data-dependent, the policymakers would likely hike by another quarter-point, given the sticky high inflation. In fact, the central banks of Canada and Australia have shown clearly, just last week, how data-dependent monetary authorities behave when inflation comes down more slowly than they wish (hint: they shock the markets with unexpected rate hikes).

However, Powell’s Fed is long-suspected to be affected by the market’s sentiment, which is also quite reasonable since in the U.S., the stock market wields much more power than elsewhere over the minds of consumers and other economic participants. On the other hand, the U.S. Federal Reserve has a credibility issue, and simply cannot give up on getting inflation back to its target of 2%. So, although it currently looks like there will be a pause this time, it is fully conceivable that an unexpected rise in May CPI numbers, published on Tuesday, will pressure the Fed to hike interest rates again.   

Meanwhile, S&P 500 (SPX) rose more than 20% from last year’s lows, giving way to heated arguments about whether stocks are really in a bull market.

If they are, this is one of the most unloved and talked-down bull markets in history, as many pundits remain pessimistic. Strategists from Wells Fargo (WFC) are insisting on expectations of a recession later this year, which will weigh on stocks in the second half of the year, while Charles Schwab (SCHW) cautions against risks to smaller and cyclical stocks, and Morgan Stanley (MS) says outright that we are in a bear-market rally. UBS (UBS) also cautioned against complacency, saying the bull market will be confirmed only after the stocks reach a new all-time high. Others remind us that stock valuations in many sectors are very high compared to their earnings forecasts, placing them in a dangerous “bubbly” spot.

The economy is apparently on a downward trend: the rise in jobless claims, the weakening of the services sector, and the increase in corporate bankruptcies to their highest since 2010 point to a considerable economic weakening, if not yet to a recession. However, the U.S. economy has again proven itself much more resilient than expected, given the fastest increase in interest rates in 40 years; it’s not unrealistic, then, to draw optimism toward stocks from the economy’s strength.

Whether the bull market has legs or not, 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 Q1 2023 reporting season has ended, but some important reports are still coming out this week from companies whose fiscal year is shaped differently.

The most anticipated releases this week include Oracle (ORCL), Adobe (ADBE), and Kroger (KR).

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 Albemarle (ALB), American International Group (AIG), American Tower (AMT), Altria Group (MO), Gilead Sciences (GILD), Hewlett Packard Enterprise (HPE), 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:

» On Tuesday, we’ll receive the all-important May’s CPI and CPI ex. Food and Energy numbers.

» On Wednesday, we’ll read into May’s Producer Price Index (PPI), a gauge of commodity inflation and a forward-looking indicator for next month’s CPI.

» The Federal Reserve will publish its interest rate decision on the same day. The interest rates are expected to remain unchanged; if they are, the attention will turn to the tone of the FOMC statement, and whether the tone is hawkish, or dovish over future developments of inflation.  

» On Thursday, May’s Retail Sales will be reported. Sales are a leading indicator that gives important information about consumer spending, which significantly impacts the GDP.

» On Friday, we’ll get a glimpse of June’s Michigan Consumer Sentiment Index (preliminary reading). Consumer exuberance can translate into greater spending and thus give a boost to inflation, supporting the hawkish case for the Fed.   

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 continued with sideways trading until one economic report changed everything. On Thursday, a report on jobless claims reflected the jump to a 20-month high, strongly supporting the expectations for a Federal Reserve pause in rate hikes. As a result, Treasury yields dropped and the technology stocks surged, leading the markets higher. On Friday, stocks continued their foray into positive territory on bets that the Federal Reserve is nearing the end of its tightening cycle.

Interestingly, despite tech’s supreme reign, the Dow Jones Industrial Average (DJIA) led the gains this past week, with a 0.50% increase. The S&P 500 (SPX) came second with 0.43% – but it was the one to make the headlines as it entered the technical bull market, rising more than 20% from its October lows. The Nasdaq Composite (NDAQ) finished the week up 0.04% and the Nasdaq 100 (NDX) was 0.34% lower, as the technology indexes failed to reverse their strong declines in the first three days of the trading week.

Stock Highlights of the Past Week

This past week the markets reacted to several earnings reports and other significant news. Below are the most noteworthy developments of the past week:

» DocuSign (DOCU): stock surged after the company beat analysts’ estimates on revenues and earnings; the updated guidance for revenue in Q2 and full year 2023 surpassed estimates.

» Verint Systems (VRNT): stock rose after the company reported consensus-beating earnings and revenue.

» GitLab (GTLB): the stock soared following its first-quarter report as it beat revenue estimates and raised guidance. The software company is still generating wide losses, but the loss per share narrowed significantly in the first quarter of 2023.

» Ciena (CIEN): the company delivered a strong performance, beating sales and earnings estimates by a wide margin. However, the stock fell after CIEN offered guidance for the current quarter and the full year, which missed consensus estimates.

» GameStop (GME): the original “Meme stock” tumbled despite the smaller net loss and EPS beat, after the company said that it fired CEO Matthew Furlong, with newly elected executive director Ryan Cohen “overseeing management” for now.

» » Our Star of the Week is Tesla (TSLA) with a 12.3% weekly jump added to its +126.3% surge since the beginning of the year. The company was positively affected by several developments, with one of the most important being the official affirmation by the U.S. Environmental Protection Agency that all variants of Tesla’s Model 3 sedans are eligible for the full federal EV tax credit of $7,500. The eligibility for 100% tax credits is expected to further support sales and help Tesla gain a larger market share within the EV sphere. In addition, the news of an EV charging partnership with General Motors (GM) – similar to the one TSLA had previously signed with Ford (F) – also propped up the stock, as it effectively establishes Tesla charging stations as the industry standard.

Major Economic Events of the Past Week

The U.S.

» May’s S&P Global Services PMI declined to 54.9 from April’s 55.1; it was expected to remain unchanged.

» May’s ISM Services PMI fell to 50.3, dangerously close to the expansion threshold of 50, from April’s 51.9.

» April’s Consumer Credit rose by $23 billion from March’s increase of $22.8 billion; it was the fastest pace of credit growth since November.

» Initial Jobless Claims for the week ending June 2^nd came in at 261K versus the expected 235K. Continuing Jobless Claims for the week ending May 26^th were at 1.757M, lower than the expected 1.800M.

Japan

» Q1 2023 GDP Annualized grew 2.7% versus Q4 2022’s 1.6% and the expected growth of 1.9%.

Eurozone

» Q1 2023 GDP grew 1% year-on-year versus Q4 2022’s 1.3% and the expected growth of 1.2%.

China

» May’s CPI rose 0.2% year-on-year versus April’s 0.1%. Month-on-month, prices fell 0.2%, the fourth consecutive month of negative price change.