Market Performance and Trends:
Last week, the stock market saw a mix of movements across major indexes. The Dow Jones Industrial Average led with a 1.45% gain, marking its return above the 50-day moving average and reaching a one-month high. In contrast, the S&P 500 posted a more modest rise of 0.6%, while the Nasdaq Composite ended the week with marginal gains.
Sector-wise, there was notable divergence. Semiconductor stocks, particularly those in artificial intelligence (AI) chip plays like Nvidia, Broadcom, Taiwan Semiconductor, and Micron, experienced volatility. Nvidia, in particular, saw a reversal from record highs, indicating potential profit-taking after substantial recent gains. On the other hand, large-cap stocks such as Meta Platforms (formerly Facebook) and Amazon demonstrated strength, setting up potential buy opportunities.
Upcoming Earnings Reports:
One of the pivotal events in the upcoming week is Micron Technology’s fiscal Q3 earnings report, scheduled for Wednesday. Analysts anticipate Micron to report earnings of 42 cents per share, marking a significant turnaround after six consecutive quarters of negative earnings growth. The revenue forecast of $5.82 billion reflects a robust 58% increase from the previous quarter, driven by strong demand in the memory-chip sector. Micron’s earnings will not only impact its own stock but also provide insights into broader semiconductor industry trends, influencing related sectors like chip equipment manufacturers.
Additionally, companies such as Carnival, FedEx, and Nike are also slated to report earnings. These reports are crucial as they will offer insights into consumer spending trends and broader economic conditions. Investors will keenly watch these reports for indications of economic resilience or potential weaknesses.
Federal Reserve and Inflation Outlook:
Market attention will also be focused on the release of the core Personal Consumption Expenditures (PCE) price index by the Commerce Department on Friday. The core PCE index is the Federal Reserve’s preferred measure of inflation. Economists are forecasting a relatively moderate reading for May. Current market expectations suggest a 65% probability of a Fed rate cut in September, with further cuts anticipated in 2024 if inflation remains subdued.
Technical Market Indicators:
Technically, the Nasdaq and S&P 500 indexes remain close to their all-time highs despite recent volatility. The Nasdaq, for instance, is currently trading approximately 6.7% above its 50-day moving average, down from 8.3% earlier in the week. This slight pullback or consolidation phase, especially in AI and semiconductor stocks, could potentially be healthy for the market, allowing for a reset and possible continuation of the uptrend.
Meanwhile, the 10-year Treasury yield rose by four basis points to 4.26% last week, reflecting ongoing market expectations and economic sentiment. U.S. crude oil futures also saw a significant increase of 3.4%, closing at $80.73 per barrel, driven by strong demand and geopolitical factors impacting energy markets.
Stocks to Watch:
Investors will be closely monitoring several key stocks:
- Nvidia (NVDA): Nvidia stock experienced a 5% decline last week to $126.57, pulling back from its recent intraday high of $140.76. Despite this retreat, Nvidia remains significantly above its 50-day moving average, indicating potential for consolidation or further price adjustment.
- Meta Platforms (META): Formerly known as Facebook, Meta Platforms saw a 1.9% decline to $494.78 last week. The stock is currently forming a handle pattern, with a potential buy point of $414.01 from a cup-with-handle base. Investors are watching closely for a breakout above this level.
- Amazon (AMZN): Amazon stock rose nearly 3% to $189.08 last week, rebounding from its 50-day moving average. It is currently forming a flat base with a buy point of $191.70, offering another potential entry opportunity.
- Nu Holdings (NU): Nu Holdings climbed by 4.2% to $12.25, matching a record close after weeks of tight trading. The Brazilian digital bank is setting up a flat base, with a buy point of $12.49, making it a stock of interest for breakout potential.
Market Strategy and Conclusion:
In summary, while the overall market remains near record highs, investors should exercise caution amidst current volatility and sector-specific movements. It may not be an ideal time to significantly increase exposure, except for carefully selected swing trades or breakout opportunities in specific stocks. Monitoring earnings reports, economic data releases, and technical indicators will be crucial for making informed investment decisions in the coming week. Staying updated with analyses from reputable sources like Investors Business Daily (IBD) can provide valuable insights and guidance in navigating market uncertainties effectively.