Despite some brief flashes of optimism, investors put both feet on the brakes during the past week, sending the stock market right back toward its late-May lows. The World Bank and Organization of Economic Cooperation and Development slashed their economic outlooks early in the week. And a startling read on inflation Friday sent expectations for Fed policy action in the coming week sharply higher. Oracle and Adobe report during the coming week, but all eyes will be on the Fed outcome on Wednesday.
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Stock Market Watch: Stocks Setting Up Near Key Level
Dollar Tree (DLTR), Norwegian state-owned oil giant Equinor (EQNR), Northrop Grumman (NOC), funeral service giant Service Corp. (SCI) and Penske Automotive Group (PAG) are all near buy points. Breakouts have struggled increasingly against the volatile stock market. But four of these stocks are trading close to their 50-day moving averages, which could help them not to look extended in the case of a breakout. Dollar Tree and Equinor are just below their 50-day lines in cup-with-handle bases. Penske Automotive has pulled back to test support at its 21-day moving average, in buy range above a 144.44 buy point. Service Corp. is in a flat base, while Northrop has pulled back below a buy point.
Econ Calendar: CPI Upends Expectations For Fed Policy Decision
The May CPI report just blew up expectations for the coming week’s Federal Reserve meeting, which will wrap up with a policy statement and rate-hike projections on Wednesday at 2 p.m. ET. Going into the CPI report, markets were pricing in half-point hikes at both the June and July meetings. Now odds are rising of a 75-basis-point hike next week, but there’s an even bigger chance it happens in July — after officials officially put an outsize hike on the table. The last time the Fed hiked so much at a single meeting was in November 1994.
Since the last Fed meeting wrapped on May 4, Fed policymakers have changed their tone. Instead of just offering assurance that the Fed can tighten without crashing the economy, Jerome Powell has been warning that combating inflation may cause economic “pain.” The quicker the economy downshifts, the better the chance of a soft landing, so expect to see more candid Fed commentary and projections on Wednesday.
Ahead of the Fed, we’ll get the latest producer price index data on Monday at 8:30 a.m. The IBD/TIPP Economic Optimism Index is due out on Tuesday at 10 a.m. Retail sales data for May come out at 8:30 a.m. on Wednesday. The latter report will show whether the recent retail strength is holding up, despite some concerning recent reports from the likes of Target (TGT). Still, even significant shifts in the data won’t do much to shift the Fed’s trajectory. Policymakers are waiting for clear and convincing evidence that inflation and underlying pressures — i.e. the tight job market — are coming down.
Software: Oracle, Adobe Earnings; Snowflake Investor Day
Software growth stocks are still looking for a catalyst amid worries over the economy and rising interest rates. Oracle (ORCL) reports fiscal fourth quarter earnings on June 13. Adobe (ADBE) reports fiscal Q2 results on June 16. Analysts estimate that Oracle’s profit will fall 1% to $1.37 per share while revenue will rise 4% to $11.62 billion. Oracle’s stock has been pressured by the pending acquisition of health care company Cerner. Similar to large cap software firms Salesforce.com (CRM) and Microsoft (MSFT), Oracle’s fiscal Q4 results and guidance could also be impacted by currency headwinds, analysts say. Adobe is expected to report EPS of $3.31, up 9% from a year earlier. The maker of digital media and marketing software’s revenue is expected to rise 13% to $4.35 billion. Adobe’s revenue growth on a year-over-year basis has decelerated for four straight quarters. The iShares Expanded Tech-Software ETF (IGV) has contracted 24% in 2022. The index was down 4.7% in May after dropping 13% in April.
Meanwhile, Snowflake (SNOW) hosts an investor day on June 14. Snowflake may update long-range financial targets. Snowflake pulled off the largest IPO ever by a software company in September 2020, raising $3.4 billion. But Snowflake stock is down nearly 60% in 2022. Snowflake reported a loss for the April quarter that met estimates while revenue topped Wall Street targets but guidance disappointed.
Thursday: Kroger, Jabil
Early Thursday, Kroger (KR) should see a 9% EPS rebound to $1.29 on a 6% revenue bounce to $43.848 billion. Same-store sales are seen rising 3.8%, roughly in line with a 4% gain the prior quarter. The supermarket operator’s report follows two guidance cuts from Target within roughly three weeks, as bloated inventories and supply disruptions weigh on the retail giant. The fashion segment sank Target this time around, with management now looking to clear unwanted merchandise to make room for in-demand items such as groceries and back-to-school supplies.
Contract manufacturer Jabil (JBL) will report its fiscal third-quarter results early Thursday. Analysts expect the St. Petersburg, Fla.-based company to earn $1.62 a share on sales of $8.22 billion. That would translate to year-over-year growth of 25% in earnings and 14% in sales. Jabil stock is in a 23-week consolidation pattern with a buy point of 72.21, according to IBD MarketSmith charts. But it could offer an early entry at 63.48 if it clears a shorter base.
Friday: Commercial Metals
Commercial Metals (CMC) report earnings for its fiscal Q3 through May on Friday before the stock market opens. The steelmaker is expected to post an 86% increase in EPS to $1.93. Sales are seen up 30% to $2.41 billion. Commercial Metals, focused on infrastructure and nonresidential construction as a top producer of reinforcing bar, has held up better than other steel stocks, off just 17% from its peak. However, CMC stock has dipped below its 50-day line.
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