Intel is being mentioned as a doable takeover goal for Qualcomm. (Photo by Jakub … [+]
Key Takeaways
- S&P 500 Hits Record High As Fed's Rate Cut Sparks Market Rally
- Upcoming Economic Data, Especially PCE, May Test Market's Reaction To Future Rate Cut Projections
- Strong Market Momentum Continues, But Dropping Earnings Expectations Signal Potential Caution Ahead For Investors
Stocks ended final week greater with the S&P 500 and Nasdaq Composite each greater by round 1.5%. For the S&P 500, it was a report closing excessive. But the huge winners for the week had been small cap shares. The Russell 2000 gained 2.3% and though it did not set a brand new closing excessive, it's inside hanging distance.
Last week's catalyst was the determination by the Federal Reserve Open Market Committe (FOMC) to chop rates of interest by fifty foundation factors. That determination was greeted with a large rally Thursday, however as I mentioned in my column final Friday, historical past has not been form to cuts of that magnitude to kick off a charge easing cycle. It's type of like consuming a fantastic meal and then realizing you had been allergic to half the components. History however, I additionally suppose the Fed's projection of two further charge cuts this yr might lead to markets being more and more delicate to any financial information. We'll get an opportunity to place that principle to the take a look at this week.
On the financial calendar this week we've got members of the Fed talking day by day. In addition, this morning we'll get the newest reads on each the Manufacturing and Services Purchasing Manager's Index (PMI). While extra financial studies are scheduled all through the week, the most necessary report comes on Friday. That is when the newest Personal Consumption Expenditures (PCE) information will probably be launched. I'm significantly on this report due to what I discussed above, the Fed's rate of interest projections.
If Friday's PCE report is according to and even decrease than forecasts, then the projections for added charge cuts make sense. If, nevertheless, the report is available in sizzling, then I believe it might invite skepticism about these cuts. That is why I believe markets have the potential to be more and more delicate to financial information.
One of the extra encouraging facets of late has been the variety of shares exhibiting power. Over 75% of shares in the S&P 500 are buying and selling above each their 50-day and 200-day shifting common. But there are additionally causes for warning. According to FactSet, earnings in the third quarter are anticipated to be greater by 4.6% on a year-over-year foundation. That quantity is down from the finish of June when it was forecast that earnings could be up 7.8%. That is a fairly important drop in expectations, particularly when contemplating the 12-month forward-looking price-to-earnings ratio is 21.4, which is effectively above its historic common.
There are some particular person shares I'll be watching this week, beginning off with Intel. According to The Wall Street Journal and Bloomberg, there are rumors Qualcomm could possibly be considering shopping for Intel or that Apollo Global Management might make an funding of as much as $5 billion in the beleaguered firm. Once the main firm in the chip house, Intel shares are down some 60% this yr. While any takeover is prone to invite regulatory scrutiny, U.S. regulators may additionally see it as a strategy to shore up U.S. dominance in a hotly contested house.
I'm additionally keeping track of a number of firms scheduled to report earnings this week, together with KB Homes, Micron, CarMax and Costco. With respect to KB Homes and CarMax, I'm curious in how the decrease rates of interest may influence their outlook. Micron is of curiosity due to continued curiosity in Artificial Intelligence. Finally, Costco's earnings could supply perception into how shoppers are spending cash.
For at this time, whereas Friday's shut wasn't what I'd name spectacular, let's have a look at if markets can construct on the momentum from final week general. With the S&P 500 having hit new highs, I'd wish to additionally see the Nasdaq and Russell observe by means of. Just a few particular shares value mentioning embody Palantir. That inventory was downgraded to impartial by an analyst at Citi. Shares of Palantir have been on a tear because it was introduced they might be becoming a member of the S&P 500. I'm additionally to see how shares of Amazon react to the information staff are being instructed to return to the workplace 5 days every week. I'm particularly questioning if the development of bringing individuals again in the workplace impacts on-line procuring traits. I'm additionally intently watching to see if there may be any response to this morning's PMI studies. Then lastly, I'm watching each gold and silver. Gold has damaged out to all-time new highs, and I'll have an interest to see if silver can observe swimsuit. As at all times, I might stick together with your investing plans and long-term aims.
tastytrade, Inc. commentary for academic functions solely. This content material just isn't, neither is meant to be, buying and selling or funding recommendation or a advice that any funding product or technique is appropriate for any particular person.
