3 big things we’re watching in the stock market in the week ahead
SpaceX’s IPO is behind us. The earnings calendar is mostly quiet. In the foreground are the developments between the USA and Iran and the first Fed meeting in which Fed President Kevin Warsh served. Let’s take a closer look at what we will watch in the shortened trading week due to the upcoming holiday. 1. Iran war: Will we finally reach a peace agreement that will end the conflict and reopen the vital Strait of Hormuz? It has become difficult to follow the comings and goings of the negotiations between the United States and Iran. One day, reports suggest that Washington and Tehran are making progress on a solution. The next day we hear of a new wave of strikes. Sometimes the tenor changes within a few hours, as it did on Thursday. Before the opening bell, President Donald Trump said the United States would hit Iran “very hard tonight” and plans to seize Iran’s oil infrastructure soon. This muted some of the stock market’s gains in morning trading. By the afternoon, Trump had called off the impending strike and claimed that reaching a deal with Iran was only waiting for “the documentation to be completed.” Oil prices fell and the stock market rose towards the close. Another set of encouraging headlines came on Friday, and on Saturday Trump said a deal would be signed on Sunday. However, Iranian state media cast doubt on the timing but said it could be achieved in the coming days. Our final conclusion: Day-trading the Iran war remains a fool’s errand because it’s impossible to truly predict what the next headline will be. The latest headline can be used to prompt a move, such as dropping a stock that has been rising on optimism about a decision or adding to a position that has been unfairly damaged by negative news. We cannot know for sure what will happen next. At the same time, we cannot leave the market because a big rise could be imminent if an agreement is reached that will result in the reopening of the Strait of Hormuz to maritime traffic. This would bring relief to oil prices and, in turn, alleviate some of the inflationary pressures that have affected the US economy since the war began on February 28. The point is that the market will be affected by the apparent state of negotiations. We hope that an agreement will be reached, but recent history tells us that we must be prepared for crises and beginnings. 2nd Fed meeting: The Warsh era is upon us. The central bank is expected to leave interest rates unchanged Wednesday afternoon, as inflation remains well above the Fed’s 2% target and the labor market remains solid. This is one of four Fed meetings each year where the central bank releases the Summary of Economic Projections (SEP), which hosts a dot plot of rate expectations and projections for GDP growth, unemployment and inflation. “SEP should show higher inflation, lower inflation,” Bank of America economists wrote in a note to clients on Friday. [unemployment] There is no cut in interest this year. Few policymakers are likely to predict increases. We don’t think Warsh will be offering predictions.” These outlooks are just a snapshot, and we don’t generally attach much meaning to them. That’s probably even more true now, given that unpredictable war and oil prices will heavily influence the Fed’s moves in the coming months. The main event will take place at 2:30 p.m. ET on Wednesday, when Warsh, who replaced Jerome Powell on May 22, holds his first post-meeting press conference. CNBC’s longtime Fed correspondent Steve Liesman summed up all this intrigue perfectly in a story Friday morning: Markets are heading into the first Fed meeting under new Chairman Kevin Warsh with little to no idea what he thinks about the recent uptick in job growth, the acceleration in inflation, or the direction of interest rates. And that may have included changes to the way the Fed communicates with markets, but that’s without a commitment from Powell to maintain his standard of holding press conferences after eight annual policy meetings. This is the market’s first chance to hear from Warsh, and they’re likely to be less frequent going forward. Does Warsh believe the oil-fueled rise in inflation warrants tighter policy from the Fed, or is it worth examining primarily as a one-off supply shock, as Jim Cramer has said? The rise in inflation is somewhat “artificial” and a war-oriented solution should help turn the tide – of course, the European Central Bank would support a postponement of the war. Warsh has also raised interest rates, the first major central bank to do so. He has said in the past that he believes AI will be a disinflationary force. 3. Economic data: There are several key economic reports to consider. On the consumer front, the May retail sales report is crucial for the economy, with private consumption representing nearly two-thirds of U.S. GDP. A strong report would certainly be a welcome sign for us. A weak report would not automatically be a bad sign for retail holdings like TJX Companies, Amazon and Costco because these companies have the scale and business models that will allow them to deliver attractive value to consumers. So while overall retail spending may soften as consumers feel the brunt of rising prices, economists are looking for a 0.5% monthly gain starting Friday, too. The housing market will also be in the spotlight this week. We think the housing market is also an important factor in determining the outcome of our investment in Home Depot, given the goods and services. The war-related rise in inflation has pushed up bond yields, which has ultimately impacted mortgage rates. In construction company Lennar’s earnings call on Friday, CEO Stuart Miller eloquently summarized what makes the housing market a difficult situation to figure out right now: “The macro economy has gotten more complicated since the first quarter earnings release… First, mortgage interest rates in the second quarter.” It remained stubbornly in the middle of 6% throughout. The 30-year fixed rate today sits between 6.4% and 6.5%; That’s slightly better than a year ago, when rates were closer to 7%, but still at a level that makes affordability difficult. The buyer with a median family income of 6.5 percent spends more than 30 percent of the gross income on housing needs. Buyers are flexible, our incentives enable purchases… The inflation picture has also become more complex. The recently published May CPI report showed headline inflation was 4.2% year-on-year, up from 3.8% in April and the highest since the beginning of 2023. The main driver was energy, as gasoline prices increased by 7% in May and more than 40% on an annual basis due to oil supply disruptions due to the Iran conflict. While this is likely just an energy-driven increase, as the core CPI hit 2.9 percent and is actually slowing on a monthly basis, higher energy prices affect every part of the American household budget and tend to hurt consumer confidence. When families see gas at the pump and utility bills rising, their willingness to make large financial commitments, including buying a home, wanes, even if their basic desire to own remains unchanged. This inflationary environment has likely taken the Federal Reserve off the table as a source of short-term relief… On the employment side, the economy remains solid on the surface, but consumer psychology is being affected by concerns about long-term job security in a time of rapid technology change. The advancement of artificial intelligence raises questions about the future of employment across a wide spectrum of the workforce. We see this in buyer behavior. Traffic is inconsistent, intent is high, but the urgency to close remains measured and deliberate rather than confident and energetic.” The takeaway: As we watch this week’s housing reports, it’s clear to home sellers that the real indicators will be energy prices and its impact on interest rates. Finally, we’ll get an update on the state of the manufacturing economy on Monday morning with the release of the May industrial production and capacity utilization report. Starting Friday, economists polled by FactSet expect a modest monthly increase of 0.2% in industrial production and capacity utilization. at 76.2%, which suggests the industrial sector is operating at a good pace Next Week Monday, June 15 Industrial production and capacity utilization 9:15 a.m. ET Before the bell: Canopy Growth (CGC) After the bell: Dave & Buster’s (PLAY) Tuesday, June 16 Residential starts at 8:30 a.m. ET Before the bell: No grade report After the bell: La-Z-Boy (LZB) Wednesday, June 17 8:30 a.m. ET Retail sales Pending home sales at 10 a.m. ET Noon ET Investment Club Monthly Meeting ET Fed decision 2 p.m. ET Chairman Kevin Warsh press conference 2:30 p.m. ET Before the bell: Progressive (PGR), Jabil (JBL), CarMax (KMX) After the bell: Thursday, June 18 Initial jobless claims 8:30 a.m. ET Before the bell: Kroger (KR), Accenture (ACN) After the bell: Friday, June 19 U.S. The stock market is closed for the June 19 holiday (see here for a full list of stocks in Jim Cramer’s Charitable Trust.) 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