Driven by strong performances in consumer companies Johnson & Johnson (JNJ), Procter & Gamble (PG) and Coca-Cola (KO), which offset declines in the energy sector, equities closed slightly higher in trading on Friday. The Dow Jones Industrial Average rose 75 points, or 0.3%, to close at 25,316.53, while the S&P 500 index added 8.66 points, or 0.31% to 2779.03 and the Nasdaq Composite Index climbed 0.14% to 7645.51.
These gains, albeit modest in percentage terms, resulted in the indexes’ best week since March. For the week, the Dow added 2.8% for its strongest rally in three months, while the S&P climbed 1.6% and Nasdaq advanced 1.2%. Nasdaq gained despite weakness in semiconductor stocks, many of which fell amid reports that Apple (AAPL) could drop supplier orders by 20%.
The news pressured chip stocks such as Advanced Micro Devices (AMD), Micron (MU) and Intel (INTC). Wireless chip giant Broadcom (AVGO) — a major supplier to Apple — lost 2.5% despite reporting strong Q2 earnings on Thursday, which pushed the Philadelphia Semiconductor Index lower by about 1%.
Nevertheless, it was a great week for stocks, given the fact that equities began the week wobbly after Mexico’s decision last Tuesday to impose retaliatory tariffs. Likewise, the week ahead is poised to be jammed-packed with news and events that will drive equity prices. But in what direction?
President Trump and Kim Jong Un are set to meet on June 12 in Singapore. While expectations for immediate denuclearization of North Korea has been reduced, leaving observers to question the impact of the summit, Trump’s deal-making capability will be on full display. Regardless of the outcome from this historical meeting, investors would be better served to keep their focus economic reports to guide their investment decisions.
One such report will be the direction of interest rates, which will be decided upon when the Federal Open Market Committee (FOMC) complete its two-day meeting (June 12-13) on Wednesday. It’s a foregone conclusion that the FOMC will hike rates, pushing its goal towards normalizing monetary policy. The question is, by how much. A quarter of a point (0.25 basis points) seems to the consensus.
Regardless of the increased amount, stocks such as Goldman Sachs (GS), Microsoft (MSFT), Visa (V), Apple and JPMorgan (JPM) should be on your radar, while General Electric (GE) should be avoided. On Thursday investors will get data on retail sales. Released monthly by the U.S. Census Bureau, the data is a strong indicator of the strength of the U.S. economy and the release of the report tend to cause above-average volatility in the stock market.
Among the consumer companies mentioned in the opening, retailers such as Walmart (WMT), Target (TGT) will be closely watched to get a sense of whether retail sales growth is stalled or slowing and gauge the strength of consumer spending. If the overall report is seen as encouraging, this could serve as a catalyst to drive stocks higher, especially when combined with last week’s strong jobs report.
Overall, given this backdrop, positive corporate earnings is currently the driving factor for rising equities and this should remain so for the foreseeable future, in my opinion. The slate of earnings will be light this coming week. But I’ll be watching software giant Adobe (ADBE), which has gained an impressive 43% on the year. It reports quarterly numbers after the market close Thursday, with consensus calling for EPS of $1.54 per share, up from $1.02 last year.