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Stocks rise with inflation data in focus
US stocks opened higher on Monday, ready to enjoy a string of gains as attention turned to the next inflation report, seen as a potential starting point for interest rate cuts.
The S&P 500 (^GSPC) rose about 0.2%, while the Nasdaq Composite (^IXIC) rose around 0.3%. The Dow Jones industrial average (^DJI) also rose 0.3%, leaving the best week of the year for the blue-chip index.
Stocks came back strong in May, supported by better-than-expected earnings and a revival of optimism about an easing of monetary policy by the Federal Reserve. The Dow Jones recorded eight consecutive daily wins on Friday – although a dearth of economic releases likely played a role.
Following the recent high inflation data, markets have been more nervous as investors increasingly priced at “no landing”, where price increases do not meet the Fed’s target, but the economy continues to grow.
This week brings a flurry of economic releases as potential catalysts, with Wednesday’s Consumer Price Index update being the star. The April CPI update will clarify whether inflation will remain sticky in the second quarter, amid some belief on Wall Street that the report will mark a faster descent and set the stage for more than one rate cut this year.
See more information: How does the job market affect inflation?
In individual stock movers, GameStop (GME) shares jumped about 45%, adding to the gaming retailer’s recent rally as meme stocks make headlines again. O the earnings came as the social media star Credited with kickstarting the meme stocking frenzy of 2021, “Roaring Kitty” has returned from a three-year break.
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- Monday, May 13, 2024 at 3:31 pm GMT+2
Stocks Rise as Dow Looks to Extend 8-Day Rally, With Inflation Print in Focus
Stocks opened higher on Monday as investors turned their attention to the last month inflation report expected this week for clues about how the Federal Reserve will move interest rates this year.
The S&P 500 (^GSPC) rose about 0.2%, while the Nasdaq Composite (^IXIC) rose around 0.3%. The Dow Jones industrial average (^DJI) also added around 0.3%, seeking the ninth consecutive daily victory. The blue-chip index reached its best week of the year on Friday.
On Wednesday, investors will know whether the inflation trend tighter than expected continued in the second quarter with the release of the April Consumer Price Index (CPI) reading.
When it comes to retail spending, Home Depot’s quarterly results (High definition) scheduled for Tuesday and Walmart (WMT) on Thursday may provide insights into U.S. consumer health.
Here’s an interesting fact about Netflix (NFLX) you probably didn’t notice.
Shares are up 12% since May 1 and are now trading at levels seen before the company disappointing earnings day at the end of April.
In a new note this morning, JP Morgan analyst Doug Anmuth credits the recovery to “1) increased comfort with the reported revenue outlook for 2024 and NFLX’s decision to no longer report subscribers starting in 2025; 2) recognition that NFLX is not subject to heavy AI-driven investment intensity like Meta, Alphabet and Amazon; and 3) excitement about the Upfront presentation on May 16.”
The annual Upfront is when TV networks and streaming services pitch their programming and advertising products to advertisers and agencies.
Anmuth believes Netflix will have optimistic things to say at the event that could be a catalyst for the stock:
“At Upfront, we expect an update to the disclosure of over 23 million ad-level monthly active users (MAU), with our conversations suggesting that investors are looking for over 35-40 million ad-level MAUs, including the benefit of the T-Mobile package. Outside of ad-level metrics, we expect updates on NFLX’s upcoming content slate and sports strategy, with articles suggesting NFLX could host two Christmas NFL games later this year. NFLX would bring the NFL massive global distribution, while gaming could serve as a boost. to NFLX’s ad tier and allow the company to actively promote future content. Finally, we look for progress in improving the advertising product, technology and sales, with some investors expecting an announcement of the 3P demand-side platform.
Bullish Trades Demand Walmart Take Profits From EvercoreISI
Walmart (WMT) stocks have lagged the S&P 500 over the past month as sticky inflation data calls into question the purchasing power of U.S. consumers.
There’s been some talk on the street about Walmart’s extra-conservative guidance when it reports earnings this Thursday morning.
But EvercoreISI retail analyst Greg Melich is putting those concerns to rest, adding Walmart to his tactical buy list in the results.
Melich says this morning:
“We believe the company is executing at a high level as it pursues initiatives such as digital advertising, Walmart Plus and automation. Even a modest improvement in digital profitability (before considering incremental advertising/alternative profit opportunity) provides a considerable margin capture opportunity. The sense is that the company will speak to a very stable low to medium income consumer, in addition to capturing higher income share, with positive traffic and reasons to gain share so that the comments are constructive throughout the year. Typically, Walmart doesn’t grow full-year earnings per share. and comparable sales guidance in 1Q, but we see them taking on a positive tone with regards to the underlying dynamics of the business. This may prove especially pronounced in international operations – which continue to record positive double-digit comparable sales percentages, with positive feedback from the industry. in the continued capture of Walmart shares, likely underestimated by investors.”
An interesting dynamic in the markets is beginning to form.
After several years of explosive EPS growth for Mag 7 names, the space is headed for a slowdown this year and next (chart at left from RBC strategist Lori Calvasina). Likewise, after several years of weak growth for the other 493 components of the S&P 500, EPS growth is expected to accelerate this year and next.
The question on the horizon is this: Do the other 493 companies in the S&P 500 represent better value than the Mag 7, given that their earnings growth is expected to accelerate again in 2025?
Does it make sense to nibble on the other 493 stocks in the S&P 500? (RBC)
Scheduled date: May 20th, JP Morgan Investor Day
With its shares up 8.7% last month on expectations of higher interest rates for longer, JP Morgan (JPM) May 20, Investor Day is coming into focus.
Jefferies analyst Ken Usdin came out this morning maintaining a buy rating on investor day but raising his price target from $215 to $227. He expects a “focus on market share gains, spending on investments and efficiency” by JPM executives.
“While net interest income guidance appears conservative with rates higher for longer, we see JPM continuing to delay guidance updates,” adds Usdin.
Goldman does not bet on a major slowdown in inflation
Sticky inflation will likely remain sticky into 2024.
Ahead of this week’s key CPI Index report, Goldman highlights the potential for disinflation in some key categories as the year progresses. Even so, Goldman’s macro team expects inflation to remain above the 2% target preferred by the Fed.
Here’s Goldman’s chief economist Jan Hatzius:
“We see more disinflation in the pipeline in 2024 due to rebalancing in the auto, rental housing and labor markets, although we expect offsets from continued inflation recovery in healthcare, auto insurance and housing. CPI inflation of 3.5% and core PCE inflation of 2.7% in December 2024.”
