Will the Fed save the stock market? Although a rate cut is expected sometime at the July meeting (and possibly this week’s June 18-19 meeting — albeit a much reduced chance), economists argue that a cut won’t do much to help the economy. But it will revive a stock market that has sputtered for more than a year. Happy Father’s Day to all dads out there, by the way.
Stocks closed lower Friday after see-sawing between positive and negative territory as investors struggle to reconcile what economic data the Fed will focus on this coming week. Take, for instance, treasury yields, which bounced impressively off session lows Friday, thanks to better-than-expected retail sales numbers that erased fears of slowing consumer spending. The data, in fact, where retail sales for May rose 0.5%, suggested the health of the U.S. economy is not only strong, but consumers will continue to spend.
Meanwhile, there was the industrial production data for May, which rose 0.4%, topping the 0.2% analysts were looking for. But when gauging all metrics for the U.S. household, it wasn’t all good news. The University of Michigan’s consumer-sentiment index for the month of June declined to 97.9 from 100 in May. The same survey revealed consumers expect long-term inflation rate of 2.2%, which would be the lowest since the survey began tracking the data. Recall, last week’s jobs report suggested 75,000 new jobs were created in May, well below 185,000 economists were looking for.
Notably, it was the second time in four months that jobs growth was under the 100,000 benchmark, which also revealed slowing wage growth. And this ties in well with what the Federal Open Market Committee will discuss when it meets this coming week and follow-up press conference with Jerome Powell set for June 19 at 2:30 p.m. At the moment, the market is pricing in as many as three rate cuts before the end of the year. This includes a 23% probability that one of those cuts will come this week.
The chance of a July cut, however, is at 85%, while the market has priced in a 61% probability for three moves in total by the end of the year. The Fed, which has vowed to not care what the markets or politics think it should do, is in a tough spot. “It’s a difficult transition for the Fed now from two rate hikes this year to the pause and now moving closer and closer to rate cuts,” said Quincy Krosby, chief market strategist at Prudential Financial.
The market, meanwhile, believes the Fed will be the interventionist to offset trade war concerns and rising bond yields, among other risks. Stocks have rebounded strongly after a brutal May, with the Dow Jones Industrial Average and S&P 500 index up more than 5% in June, while the Nasdaq has back near all-time highs after falling briefly into correction territory. In other words, the Fed’s job this week, among other things, is balance its economic mandates with — to say it plainly — not messing things up. Here are a few of stocks to keep an eye on.
Adobe (ADBE) - Reports after the close, Tuesday, Jun. 18
Wall Street expects Adobe to earn $1.78 per share on revenue of $2.7 billion. This compares to the year-ago quarter when earnings came to $1.66 per share on revenue of $2.2 billion.
What to watch: Owing to net-new subscribers and the growing adoption of its enterprise services, expectations are high for Adobe’s Creative Cloud segment, which is approaching annualized revenue of $6 billion. The growth has been driven by better-than-expected subscription adoption among government and educational institutions. And with some 90% of the company’s total revenues being of the subscription-based variety Wall Street expect a strong top- and bottom-line beat Tuesday. But guidance will be a question mark, given the overall tenor of tech stocks amid the ongoing trade war.
Barnes & Noble (BKS) - Reports before the open, Wednesday, Jun 19
Wall Street expects Barnes & Noble to lose 22 cents per share on revenue of $764.87 million. This compares to the year-ago quarter when it lost 29 cents per share on revenue of $786.08 million.
What to watch: The brick-and-mortar bookstore giant, which has 627 different locations across all 50 states, recently announced it had greed to be acquired by UK-based Elliott Advisors for $6.50 per share in an all-cash transaction valued at approximately $683 million. This includes the assumption of debt. The $6.50 per share purchase price marks a hefty premium of 43% to the company’s average closing share price for its previous ten days prior to the deal being announced. But not all investors are agree that the 43% premium is “hefty."
Oracle (ORCL) - Reports after the close, Wednesday, Jun 19
Wall Street expects Oracle to earn $1.07 per share on revenue of $10.95 billion. This compares to the year-ago quarter when earnings came to 99 cents per share on revenue of $11.26 billion.
What to watch: The cloud market continues to accelerate, as evidenced by the strong earnings beats from the likes of Salesforce (CRM), but can Oracle do enough to convince investors it can finally stake a larger claim to the sustained growth of the market? Oracle shares have risen some 27% since the December lows, besting the 22% rise of the S&P 500 index. The company is in the third year of this multi-year transition to a Cloud subscription-based model. One item worth noting is the recently-announced partnership with Microsoft (MSFT). The two rivals are working together with their cloud-based software enterprises to take on Amazon (AMZN).