Fed’s Favorite Inflation Reading Takes Center Stage: What to Know This Week
Hey there, traders! As we wrap up the final week of Q2 and the first half of 2024, we’re gearing up for a key inflation reading, a smattering of corporate results, and a review of the market’s performance so far this year.
Inflation in Focus 🔍
On Friday, the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation measure, will take center stage. Expectations are that prices will rise 0.1% on a “core” basis, which excludes food and energy, marking the slowest monthly rise since last November. On an annual basis, core PCE inflation is expected to jump 2.6%, the least since March 2021.
This reading comes on the heels of the Consumer Price Index (CPI) report, which showed inflation continuing to cool. The Fed forecasts released earlier this month expect at least one rate cut in 2024, and this PCE reading will likely influence those expectations.
Earnings Highlights ⭐️
This week’s earnings calendar is relatively light, but we’ll be keeping an eye on FedEx (FDX) on Tuesday, Micron (MU) on Wednesday, and Nike (NKE) on Thursday. Micron’s report will be closely watched for signs of robust AI demand, while Nike’s report comes at a crucial time for the retailer as it faces competition in its core athletic footwear market.
AI Rally Continues
Last year’s AI trade took markets by storm, with the S&P 500 rising over 22% and the Nasdaq gaining nearly 40%. While some expected this rally to broaden to other sectors, AI-related plays like Nvidia (NVDA), Super Micro Computer (SMCI), Broadcom (AVGO), and Micron continue to be among the best performers in the S&P 500 this year.
4 Key Themes for 2024
As we look ahead to the second half of the year, four key themes are emerging:
AI: Companies remain constructive around the AI theme, with many announcing additional capex spend, new AI models, and organizational reorientation towards providing AI products.
Weight-Loss Drugs: Eli Lilly (LLY), manufacturer of popular weight loss drugs Mounjaro and Zepbound, has seen its stock soar 52% this year, making it the eighth-largest company in the S&P 500.
US Consumer: The consumer is showing signs of caution, with growing caveats on the level of resilience given consumer pushback on pricing, trade-downs, and value-seeking behavior, especially among low-income consumers.
Expense Management: Companies are continuing to focus on expense management, with many announcing layoffs, cost-cutting measures, and efforts to reengineer their cost base.
Weekly Calendar
Here’s a rundown of the key economic data and earnings releases to watch this week:
Monday: Dallas Fed Manufacturing, June
Tuesday: S&P CoreLogic Case-Shiller home prices, April; FedEx (FDX) earnings
Wednesday: MBA mortgage applications, week of June 21; Micron (MU) earnings
Thursday: First quarter GDP, third estimate; Nike (NKE) earnings
Friday: PCE inflation, May; Personal income, May; Personal spending, May
Stay tuned for a busy week ahead, and don’t forget to keep an eye on the presidential debate between President Biden and former President Donald Trump on Thursday night!
