Inflation reading and a Fed meeting: What to know this week

 

 

Stocks closed another week near record highs as the latest jobs report showed a US labor market that's cooling, but not at a pace that economists find concerning.

The Nasdaq Composite (^IXIC) was up about 2.3%, and the S&P 500 (^GSPC) rose roughly 1.3%. The Dow Jones Industrial Average (^DJI) was up about 0.3%.

The week's highlights include the June Federal Reserve meeting and a key inflation reading on Wednesday. The first reading of consumer sentiment for June is also expected on Friday.

In corporate news, Big Tech will kick off the week with Nvidia's (NVDA) 10-for-1 stock split and Apple's (AAPL) Worldwide Developer's Conference both set for Monday. A vote on Tesla (TSLA) CEO Elon Musk's $56 billion pay package is expected on Thursday.

Meanwhile, chaotic moves in GameStop stock (GME) have continued to garner investor attention as the return of Keith Gill, a popular leader of the 2021 meme stock frenzy, has reignited interest.

The Fed, inflation, and the path for interest rates
Friday's May jobs report showed more job additions than expected, adding fuel to a common narrative from Federal Reserve officials that the labor market remains on solid enough footing to keep interest rates at their current restrictive levels. And to economists, the latest data just emphasizes that the Fed needs to see inflation decline further before cutting rates.

"Policymakers will need to see a few slower inflation reports over the summer in order to start cutting rates by the fall," Wells Fargo senior economist Sarah House wrote in a research note on Friday.

The next update on inflation is expected on Wednesday morning with the release of the May Consumer Price Index (CPI). Wall Street expects an annual gain of 3.4% for headline CPI, which includes the price of food and energy, unchanged from April. Prices are set to rise 0.1% on a month-over-month basis, down from 0.3% in April.

On a "core" basis, which strips out the volatile food and energy prices, inflation is expected to have risen 3.5% year over year, a slowdown from the 3.6% increase seen in April. Monthly core price increases are expected to clock in at 0.3%, unchanged from the prior month.

The release will come just hours before the Fed's latest policy decision, where markets largely expect the central bank to keep rates unchanged. This pushes the main focus to the Fed's latest Summary of Economic Projections (SEP) — including its "dot plot," which maps out policymakers' expectations for where interest rates could be headed in the future — as well as commentary from Fed Chair Jerome Powell.

JPMorgan chief US economist Michael Feroli expects the Fed to project a median of two interest rate cuts this year in its dot plot, down from three in March. As far as Powell's commentary is concerned, Feroli believes Powell's presser will be perceived "dovish."

"At the press conference, we expect Chair Powell will express confidence that the economy is still on the right path and that the FOMC can be patient in gaining confidence that inflation is heading toward two percent," Feroli wrote in a note to clients on Friday.

Fewer cuts, no problem
Prior to Friday's jobs report, the market was pricing in two rate cuts this year. After the release, that number teetered between one and two, per Bloomberg data.

Notably, though, that shift and a 15-basis-point jump in the 10-year Treasury yield (^TNX) to 4.43% did little to deter investor optimism as the S&P 500 closed near a record high on Friday.

New York Life Investments economist and chief market strategist Lauren Goodwin told Yahoo Finance this could be because the stronger-than-expected jobs report is good news for the economy, and "markets have been very focused on growth."

She added that, given the solid earnings backdrop expected for the rest of this year and a solid growth trajectory for the economy, markets can take the Fed repricing "in stride."

Apple's WWDC
Apple's Worldwide Developers Conference is set to kick off on Monday, with investors expecting more details to be released on the tech giant's push into generative AI.

After a rocky start to the year, the stock has rallied more than 7% over the past month leading into the event and recently turned positive for the year.

Yahoo Finance's Dan Howley has a full preview of the event.

More Nvidia stock
Nvidia shares are set to begin trading on Monday on a new 10-for-1 split basis, revising the stock price from its Friday close of $1,208.88 to $120.88. The split means that owners of Nvidia common stock as of the close of market on Thursday received 10 shares for each share they held. For example, if a shareholder owned four shares of Nvidia as of Thursday, they'll now own 40 shares post-split.

Typically, stock splits are viewed by investors as a sign of strength, and consequently, companies that split their stock typically outperform the S&P 500 in the year following their announcement.

On average, stocks rise 25% in the 12 months following the announcement of their split compared to an average return of 12% from the S&P 500 in the same time frame, per analysis from Bank of America. This has been true "across market regimes," BofA investment and ETF strategist Jared Woodard wrote in a note to clients.

Notably, the trend includes the time period from 2000 to 2009, amid the unwinding of the tech bubble. Since Nvidia announced its split on May 22, shares are up about 27%.

Musk's money
Tesla's annual shareholder meeting is slated for after the market close on Thursday, and the most pressing issue will be the shareholder vote on a potential $56 billion pay package for CEO Elon Musk.

Morgan Stanley analyst Adam Jonas said he's advised investors to pay close attention to the vote, as it will have "significance to the long-term strategic direction of the company."

He added, "While impossible to predict the outcome, we expect the event could potentially drive material volatility in TSLA shares."

In a survey of 109 investors, Morgan Stanley found most investors feel that approving Musk's pay package would send Tesla shares higher, while a vote not to approve would weigh on the stock. Entering the meeting, Tesla shares are down nearly 30% this year.

Weekly calendar
Monday
Economic data: New York Fed one-year inflation expectations, May (3.26% previously)

Earnings: No notable earnings.

Tuesday
Economic data: NFIB Small Business Optimism, May (89.5 expected, 89.7 previously)

Earnings: Academy Sports and Outdoors (ASO), Casey's (CASY), Oracle (ORCL)

Wednesday

Economic data: Consumer Price Index, month-over-month, May (+0.1% expected, +0.3% previously); Core CPI, month-over-month, May (+0.3% expected, +0.3% previously); CPI, year-over-year, May (+3.4% expected, +3.4% previously); Core CPI, year-over-year, May (+3.5% expected, +3.6% previously); Real average hourly earnings, year-over-year, May (+0.5% previously); MBA Mortgage Applications, week ending June 7 (-5.2% previously); FOMC rate decision (no change to range of 5.25% to 5.5% expected)

Earnings: Broadcom (AVGO), Dave & Buster's (PLAY), Vera Bradley (VRA)

Thursday
Economic data: Initial jobless claims, week ending June 8 (223,000 expected, 229,000 previously); Producer Price Index, month-over-month, May (+0.1% expected, +0.5% previously); PPI, year-over-year, May (+2.5% expected, 2.2% previously);

Earnings: Adobe (ADBE), Lovesac (LOVE), RH (RH), Signet Jewelers (SIG)

Friday

Economic data: University of Michigan consumer sentiment, June preliminary (72.8 expected, 69.1 prior) Import prices, month-over-month, May (+0.1% expected, +0.9% previously); Export prices, month-over-month, May (+0.2% expected, +0.5% previously)

Earnings: No notable earnings.