AdamParent
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FOMC members may look to temper market enthusiasm. (0:20) GameStop, Walgreens set to report earnings. (2:26) Goldman sees path to S&P 6,000. (4:38)
The following is an abridged transcript:
The top stories to look out for
The Fed took the headlines this past week and may well take them in the holiday-shortened week ahead.
The FOMC decision was deemed dovish by the markets, inasmuch as FOMC member boosted real GDP and inflation expectations for this year in the Summary of Economic Projections but still stuck with three rate cuts.
In response, Treasury yields fell and stocks rallied. The 10-year yield (US10) fell back down to 4.20% and the 2-year (US2Y) dipped to 4.60%. And the S&P 500 (SP500) had its best week of 2024.
All that means looser economic conditions. And with the Fed blackout period over, members will now have a chance to tighten them if they choose.
Federal Reserve Board Governor Christopher Waller will speak on the economic outlook before an Economic Club of New York reception on Thursday.
On Friday, Chairman Jerome Powell is participating in a moderated discussion before the Federal Reserve Bank of San Francisco Macroeconomics and Monetary Policy Conference. But we’ll have to wait for Monday for market reaction with stock and bond markets closed for Good Friday.
Goldman Sachs says that Powell and a slight majority of the FOMC feel strongly about not delaying cuts for too long and are targeting the June FOMC meeting. On Seeking Alpha, analyst Zoltan Ban warned that the Fed may need to raise rates after the election due to the combination of inflationary federal budget deficits and a scarcity of goods effect.
And since Good Friday is a market holiday but not a federal holiday, the Fed’s favorite inflation gauge will arrive that morning along with the February income and spending report. Economists expect a 0.3% rise for the month, with the annual rate holding steady at 2.8%.
Also on the economic calendar are durable goods orders for February and March consumer confidence.
The market will also be on the lookout for more stock split announcements in the wake of Chipotle’s (CMG) big rally following its decision to split 50-for-1. A screen of companies that have a market cap of more than $2 billion, a share price of more than $100 and gains of over 100% over the last 52 weeks could shorten the guesswork.
That list of split candidates includes Super Micro Computer (SMCI), Coinbase Global (COIN), e.l.f. Beauty (ELF), XPO (XPO), Netflix (NFLX), Eli Lilly (LLY), Deckers Outdoor (DECK), DoorDash (DASH), and Royal Caribbean (RCL)
Looking to earnings
GameStop (GME) will report on Tuesday after the bell. Analysts are looking for adjusted EPS of $0.30 on revenue of $2.05 billion.
SA analyst Ahmed Abdelazim is bullish on the stock and expects strong video game sales when GME reports. He adds that the projected decline in sales does not warrant “the discount the stock is trading at relative to its peers.” And he sees more than 60% upside to current levels.
Also on the calendar, Westport Fuel Systems (WPRT) weight in on Monday.
McCormick (MKC) joins GameStop on Tuesday. Paychex (PAYX), Carnival Cruise Lines (CCL), Jefferies (JEF) and H.B. Fuller (FUL) report on Wednesday. Walgreens Boots Alliance (WBA), Oxford Industries (OXM) and Torrid (CURV) are due on Thursday.
Among the top stories of the weekend
Johnson Controls International’s (JCI) efforts to sell some of its heating and ventilation assets valued at more than $6 billion have attracted industrial companies such as Robert Bosch, Lennox International (LII) and Samsung Electronics (OTCPK:SSNLF). That’s according to Reuters.
The offer from Johnson Controls includes its residential and light-commercial businesses, including a U.S. business and a 60% interest in Johnson Controls-Hitachi Air Conditioning, a joint venture with the Japanese conglomerate. Other bidders may appear and a possible deal is months away. Johnson Controls’ brands include Luxaire, Coleman and York.
Sixteen states including Texas and Louisiana filed a lawsuit this week to challenge the Biden administration’s suspension of approving new licenses to export liquefied natural gas, arguing the federal government lacks proper authority to unilaterally deny the permits, even on a temporary basis.
And aviation authorities are pondering steps to halt the expansion of United Airlines (UAL), such as limiting the carrier from adding more routes, after several safety mishaps, Bloomberg reported.
The FAA has discussed temporary measure with United management that include barring the carrier from flying passengers on newly delivered aircraft. The agency already withdrew United’s ability to approve and promote pilots to fly different models of planes.
For income investors
Here are some companies that have an ex-dividend date coming this week:
Dick’s Sporting Goods (DKS) goes ex-dividend on March 27 with a payout date of April 12. Humana (HUM) and Mondelez (MDLZ) go ex-dividend on the same day. Human’s payout date is April 26 and it’s April 11 for Mondelez. Micron’s (MU) ex-dividend date is March 28 with payout on April 16.
And in the Wall Street Research Corner
Goldman Sachs eyes a bullish road to 6,000 for the S&P 500 (SP500).
Strategist David Kostin says the “path of the S&P 500 forward multiple is uncertain.”
“Today, the forward P/E for the aggregate index ranks in the 89th percentile since 1990 and the valuation of the equal-weight index ranks in the 93rd percentile. Given that just three months into the new year the S&P 500 index trades at our year-end target, we explore … valuation scenarios that are different from our baseline.”
Of these scenarios, the most bullish sees a rise of about 15% to close out 2024 at 6,000, mainly driven by megacap tech.
“We previously argued that the current growth stock rally is different from the 2021 and Tech Bubble experiences because investors today focus on profitability,” Kostin said. “In addition, although AI optimism appears high, long-term growth expectations and valuations for the largest TMT stocks are still far from ‘bubble’ territory.”
“The cap-weight S&P 500 index traded at a greater than 100% valuation premium to the equal-weight index during the Tech Bubble and at a 30% premium in 2021. Takeaways from NVDA’s GTC were encouraging and point to conditions of strong demand and constrained supply.”
