Can the Market Win on Day 9? Here's Why It's Possible
Why we're watching retail earnings from Macy's, Target, and others; Lowe's report; the Fed; and more.
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The stock market pushed higher for an eighth-consecutive day yesterday, marking the longest continuous daily rally so far this year.
Will it go on another day? We're already seeing some "bad news is good news" that it possibly could.
First, Lowe’s Companies LOW is reporting a sales miss and cutting its outlook, mirroring some of the consumer weakness rival Home Depot HD reported last week. Those reports and similar ones have pointed to softer consumer spending and a slowing of the economy. That increases the odds of a larger Fed interest-rate cut, which could lead to more green on Wall Street. Recent layoff announcements from Intel INTC, Cisco CSCO, Mastercard MA, General Motors GM, Stellantis STLA, and others also could point to higher rate-cut odds.
The ongoing rally indeed has much to do with speculation over the Fed’s next move.
We’ve seen this kind of action before ... and the market has also gotten ahead of itself in the process before. Rate-cut expectations have disappointed. Despite the 9% move in the S&P 500 over the last few weeks -- and its Relative Strength Index reading of 62.2 -- the index isn’t overbought. The easy money to be made when the market was oversold earlier this month is no longer present.
Should the market continue to grind higher, we’ll continue to watch companies that are flirting with becoming outsized positions in the portfolio, are approaching their price targets, or are meaningfully overbought. We’ll also continue to work on finding some fresh meat for the Bullpen.
Holding Pattern
Today we are back in familiar territory with what is essentially a holding pattern until the next wave of earnings from Macy’s M, Target TGT, and TJX Companies TJX. All report tomorrow morning. We will get some additional color on the consumer today through quarterly results and guidance from Lowe’s and Coty COTY, but arguably recent earnings from Home Depot and Estee Lauder EL already gave us a picture of what's happening.
The guidance from tomorrow’s retail companies, as well as others this week, will help fill in more details on consumer spending in the second half of 2024. We will be especially focused on inventory and what excess levels could mean for discounting efforts in the next few months. We’ll also be listening for any early hints about 2024 holiday shopping season expectations. We suspect what we hear will be positives for our holdings in Costco COST and Amazon AMZN.
The collective EPS guidance coming this week will likely further reframe second half 2024 earnings per share expectations lower for the S&P 500 and could raise some flags about the market’s recent string of up days that have it not oh so far from its 2024 high. We discussed this in Friday’s Weekly Roundup, and it’s not lost on us that historically September has been the poorest-performing month for the stock market.
Wednesday also brings the next iteration of Fed meeting minutes, which because of more recent economic data and Fed official commentaries, are more likely to be a non-event. The big event the market is building toward this week is what Fed Chair Powell will say on Friday from the Jackson Hole Economic Symposium.
Some, like Evercore ISI, think Powell will outline a flexible approach to rate cuts, including the central bank being open to a 50-basis point rate cut. We may get some clues today from Atlanta Fed President Raphael Bostic and Fed Chair for Supervision Michael Barr but it’s Powell the market is waiting for.
Powell will likely recognize further inflation progress and remind us the Fed's eyes are on the jobs market, but we do not see him tipping his hand. Powell may say the Fed is increasingly comfortable starting rate cuts, but with just under four weeks until the September policy statement and a raft of data coming before then, he’s going to keep his cards as close to his vest as he can. Even if it is increasingly obvious what the Fed is likely to do. The risk isn’t that Powell will be more hawkish than expected, but that he may not be as dovish as the market expects.
As we wait for the Fed chief, we will continue to keep a close eye on plans by the Canadian National Railway CNI and Canadian Pacific CP to lock out workers from the early hours of Thursday. Potential work stoppages would not only bring billions of dollars of economic damages, but would also disrupt rail trade across North America. Fresh supply chain problems have the potential to add to inflation pressures. That could be a wild card Powell is watching.
At the time of publication, the Pro Portfolio was long COST, AMZN.
