Friday’s weak finish for the mega-cap stocks (and the broader market) created some added uncertainty about where this week might go. One thing we know for certain is that more market participants should be back at their desks with the July 4th holiday week in the rearview mirror.
At the moment, the broader market isn’t heading anywhere fast.
The S&P 500 futures are down three points and are trading roughly in-line with fair value, the Nasdaq 100 futures are down 27 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are up seven points and are trading roughly in-line with fair value.
The lack of conviction stems in part from a desire to see how the mega-cap stocks will trade after Friday’s weak finish. On a related note, CNBC reported that Citigroup downgraded its U.S. market view to Neutral from Overweight, citing an expectation that the mega-cap stocks are due for a pullback.
A different call comes from Fundstrat’s Tom Lee, who said in a CNBC interview that he thinks the S&P 500 could rally 100 points after the June CPI report on Wednesday. If he is right, any such move would likely include the mega-cap stocks.
Mr. Lee’s call is very much a tactical call, yet he feels that core CPI could come in at 0.2% month-over-month, or lower, and trigger a relief rally at the front of the yield curve that fuels a rally in stocks. The Briefing.com consensus estimate for core CPI is 0.3%.
That CPI report will be a focal point this week and for good reason. Today, one of the focal points is that China’s June CPI was flat year-over-year (expected +0.2%) while June PPI was down 5.4% year-over-year (expected -5.0%), falling at its fastest pace in seven years.
Those inflation reports, and worries about deflation, have fueled speculation that China will soon announce additional policy stimulus measures.
Beyond this week’s inflation data (June PPI is out Thursday), market participants will be anxiously awaiting the earnings reports from Delta Air Lines (DAL), PepsiCo (PEP), Fastenal (FAST), Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), and UnitedHealth (UNH) later in the week.
This string of reports on Thursday and Friday will kick off the start of the June quarter earnings reporting period. According to FactSet, the second quarter blended earnings growth estimate is -7.5%. That would be the largest decline in earnings since the second quarter of 2020; nonetheless, we made the case in The Big Picture column published on Friday that the bar of expectations has gotten higher ahead of this reporting period.
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Originally Posted July 10, 2023 – Market’s eye on inflation data and earnings news
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