Fed Chief Powell Joins Global Central Bank Chiefs On Wednesday

(Monday Market Open) Stock futures rose in premarket trading as better-than-expected durable goods numbers released before the open built on the positive consumer sentiment and housing data that fired up Friday’s relief rally. Investors will have plenty more economic data, public comments from Federal Reserve members and continuing global news developments to consider ahead of the Independence Day weekend.

Potential Market Movers

As getaway weeks go before a big holiday, this one likely won’t be quiet.

Federal Reserve officials will be speaking publicly throughout the week, headlined by Federal Reserve Chairman Jerome Powell at an ECB conference in Portugal on Wednesday, followed by the release of PCE inflation—said to be the Fed’s favorite inflation barometer—on Thursday.

Equity futures were higher before the open. S&P 500 futures were up 0.21% after completing their best trading session since 2020 on Friday.  Dow Jones futures were up 0.10%, and Nasdaq futures rose 0.24% before the bell. Even if Friday’s bear bounce continues in today’s trading, Wall Street is still set to wrap up the worst first half year for stocks in decades.

Before the open, the TK report was released, showing May durable goods orders rose 0.7% after a revised 0.4% advance in April. Expectations had been for a 0.2% increase.

Investors saw some light at the end of the inflation tunnel Friday with better-than-expected University of Michigan consumer sentiment numbers and higher new home sales. WTI crude oil futures were up a slight 0.48% to 108.14 a barrel as energy prices seemed to be moderating globally.

One positive piece of global data that could move markets is an increase in China’s total industrial profits, which rose 1% from a year ago as the nation continues to reopen. Investors also await economic signals from the G-7 meeting in Germany.

Nike (NYSE: NKE

S&P 500 futures made a big push over the 3,800 level on Friday, notching a 3.4% gain as the contract bounced off lows it made near 3,639 and rocketed back above 3,900. But the /ES is still in a downward channel, with the upper trendline beginning with the highs from late March and traveling downward along the other highs from April and June.

Price also is now trading near the 21-Day Exponential Moving Average, which is the nearest of the major moving averages and could be an important resistance level to overcome. In terms of technical developments, the Moving Average Convergence-Divergence (MACD) and the Parabolic SAR both are making bullish crossovers today. However, there’s also resistance to watch for near the 4,000 level.

Technical analysis typically discourages looking at arbitrarily assigning importance to round, even numbers, but in this case, this level matches up with the yearly -1 Standard Deviation Channel. Just beyond this point is also the previously mentioned downward trendline near roughly 4,050, so stay alert for a potential pullback if the price reaches these levels.

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The Cboe Market Volatility Index (VIX) edged up a little before the open to 28 after a significant retreat last week. Readings close to 30 are considered a sign of expected volatility.

Reviewing the Market Minutes

The S&P 500 (SPX), which finally closed in bear territory on June 13, jumped 3.06% Friday to close at 3,911.74, finishing the week with a gain of 6.5%. Friday’s gain was the broad market’s biggest increase since May 2020, finishing 19% down from its record close in January. The technology-heavy Nasdaq Composite ($COMP) rallied 3.34% on the day and rose up 7.5% for the week.

The Cboe Market Volatility Index (VIX) settled back to just over 27 by the end of the day.

The Dow Jones Industrial Average ($DJI), which surged 826 points by the close, finished with a 2.68% on Friday and up 5.4% for the week. Small-caps also took part in the rally with the Russell 2000 (RUT) climbing 3.16% by Friday’s close.

Speaking in Zurich earlier Friday, James Bullard, president of the St. Louis Fed, declared that fears of a U.S. recession were excessive and that consumers still have spending power. He repeated his call for further “front-loading” of rate increases to curb inflation after the Federal Reserve’s 75-basis-point hike on June 15.

After the opening bell, the trading day began with a surprise increase in new U.S. single family home sales in May, though some analysts expect future Fed rate increases—however large— to continue moving mortgage rates upward which could lower those numbers in the coming weeks. Sales of new homes rose 10.7% last month to a seasonally adjusted annual rate of 696,000. April’s sales were revised up to 629,000 units from the previous 591,000 count. The government reported that sales rocketed in the West and South, but fell in the Midwest and Northeast.

The morning’s main event was the release of June’s final consumer sentiment data from the University of Michigan. Adjusted slightly downward from earlier in the month, consumers said they expect inflation to rise at a 5.3% annualized rate by month’s end compared to an earlier forecast of 5.4%. The university also revised its May inflation expectations over the next five to 10 years from 3.3% to 3.1 percent.

Though respondents still displayed “the highest level of uncertainty over long-run inflation since 1991” according to Michigan researchers, investors chose to take even slightly less consumer worry about prices as a sign to buy.

And perhaps, as a sign to travel. It was a big day for cruise lines as Carnival Corp. (CCL) reported a miss on both earnings and revenues on Friday but announced 2Q delivered its best bookings volume since the start of the pandemic.

Carnival shares rose 12.44% while competitors Royal Caribbean Cruises RCL and Norwegian Cruise Line NCLH rose 15.77% and 15.36% respectively by Friday’s close. Casino and airline stocks also rose, with United Airlines UAL and American Airlines AAL, up 7.54% and 7.09% respectively.

After reporting better-than-expected sales and earnings thanks to rocketing used car prices, CarMax (KMX) stock finished up 7.19% Friday. 

Nearly all major indexes shot up more than 3% on Friday as better-than-expected housing numbers, consumer sentiment data and positive comments from St. Louis Fed chief James Bullard on recession fears helped the S&P 500 break a three-week slump.

CHART OF THE DAY: GOTTA GO. Earlier this month, the Dow Jones U.S. Travel & Tourism Index ($DJUSTT—red/green) closed down nearly 46% from its one-year high back in November. On Friday, the index gained 5.49% amid broad gains in a range of transportation and travel stocks. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Three Things to Watch

More from Michigan: Though the University of Michigan Survey of Consumers released finalized June data on Friday revealing a fairly bleak outlook on spending, it’s important to note that respondents didn’t feel as negatively about their incomes. Though respondents expecting wage gains edged down from 1.8% in May to 1.1% in June, over half said they expect their incomes to grow over the next year.

Payday POV: The latest Michigan study also reported that consumers under the age of 45 continue to be more upbeat than older consumers, expecting a one-year gain in income of 4.7%. However, all age groups told the university in June that they expect declines in how they’ll fare financially in the year ahead while about 53% said they expected their incomes to be outpaced by prices over the next year.

What About Credit? A report last week from CreditCards.com says the average new credit card annual percentage rate (APRs) now stands at 16.98%,as of June 22. The Bankrate news subsidiary reported that most lenders have matched the Fed’s previous rate hikes this year—most credit card rates are based on the prime rate—and have increased APRs on most new cards by 75 basis points between March and June. “With federal rates now dramatically higher, most lenders who didn’t match the Fed’s historic (June 15 rate hike) are all but certain to do so soon, erasing the unusually low APRs that dominated during the pandemic,” CreditCards.com said, adding, “already at a two-year high, new card APRs could soon break all-time records.” 

Notable Calendar Items

June 28: CB Consumer Confidence

June 29: Gross domestic product (GDP) and earnings from Paychex PAYX and General Mills GIS

June 30: Initial Jobless Claims, PCE inflation, Chicago PMI, and earnings from Walgreens Boots WBA, Micron MU, and Constellation Brands STZ

July 1: ISM Manufacturing PMI

July 4: Markets closed for Independence Day

July 5: Factory Orders

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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