Market Outlook for This Week: Key Indicators and Earnings Reports

Federal Reserve and Central Bankers’ Remarks

Jerome Powell’s Speech

Federal Reserve Chair Jerome Powell is scheduled to deliver remarks this week, following the Federal Reserve’s decision to cut the federal funds rate by 50 basis points. This move marks the first major easing in four years and has already had a noticeable impact on market sentiment. Powell’s speech is expected to provide further insights into the Fed’s outlook on inflation, labor market conditions, and future monetary policy.

In his recent speech on September 18, 2024, Powell highlighted significant progress in addressing inflation, which has fallen to 2.5% over the past 12 months, moving closer to the Fed’s target of 2%. He also noted that the unemployment rate stands at 4.3%, indicating a cooling labor market primarily due to an increase in labor supply rather than elevated layoffs. Powell’s cautious optimism suggests that the Fed is confident in achieving its dual mandate of price stability and maximum employment without significantly harming the labor market.

Market Implications

The market has reacted positively to the recent rate cut, with the S&P 500 up 1.36%, the Dow Jones up 1.62% to a new all-time high, and the Nasdaq up 1.49%. However, ongoing concerns include a potential government shutdown, an upcoming presidential election, and geopolitical tensions. Analysts from Piper Sandler have suggested that the current easing cycle may indicate a recession risk, pointing to historical patterns after similar rate cuts in 2001 and 2007. Stifel analysts predict a correction for the S&P 500, expecting it to decline to the low 5,000s by the end of the year, about 12% lower than current levels.

Housing Market Data

New and Pending Home Sales

This week, the market will closely watch the release of new and pending home sales data. The August new home sales report is scheduled for Wednesday, and the pending home sales report will be released on Thursday. These reports are critical indicators of the housing market’s health and can provide insights into broader economic conditions.

According to recent data, pending home sales in July 2024 fell by 5.5% month-over-month, with all four U.S. regions experiencing losses in transactions. Year-over-year, the Northeast saw an increase, while the Midwest, South, and West reported declines. The National Association of Realtors (NAR) Chief Economist Lawrence Yun noted that a sales recovery did not occur in midsummer, attributing challenges to affordability and a wait-and-see approach related to the upcoming U.S. presidential election.

Housing Prices and Inventory

Existing home sales rose slightly by 1.3% to a seasonally adjusted annualized rate of 3.95 million in July; however, this level is near cycle lows. The forecast for total home sales in 2024 has been revised downward to 4.7 million, a decrease of 0.3% from 2023. Existing home sales are expected to average around 4 million annualized units for the remainder of 2024, potentially falling to the slowest annual pace since 1995. In contrast, new single-family home sales jumped 10.6% in June to a seasonally adjusted annual rate of 739,000, prompting an upward revision in the new home sales outlook.

The current market conditions reflect a strong “lock-in” effect, where many existing homeowners with lower mortgage rates are reluctant to sell, thereby limiting available inventory. Approximately 80% of existing 30-year fixed-rate loans have rates at least 100 basis points below the current average rate of 6.20%. The inventory of homes for sale has increased 19.8% year-over-year, but this is largely due to slower sales rather than a surge in new listings.

Consumer Sentiment Surveys

University of Michigan’s Consumer Sentiment Index

The University of Michigan’s preliminary consumer sentiment index for September 2024 showed an improvement, rising to 69.0 from a final reading of 67.9 in August. This increase surpassed economists’ expectations, who had predicted a preliminary reading of 68.5. The survey indicated a growing expectation among both Republicans and Democrats for a potential win by Vice President Kamala Harris in the upcoming presidential election, contributing to an increase in partisan gaps in sentiment.

Inflation Expectations

Inflation expectations showed a positive trend, with one-year inflation expectations decreasing for the fourth consecutive month to 2.7%, the lowest level since December 2020, compared to 2.8% in August. Meanwhile, the five-year inflation outlook slightly increased to 3.1% from 3.0% in the previous month. The survey was conducted prior to a debate between Harris and Republican candidate Donald Trump, which could have further influenced consumer sentiment.

Corporate Earnings Reports

Micron Technology

Micron Technology (NASDAQ: MU) is set to report its fourth-quarter earnings on September 25, 2024. Analysts are predicting a consensus earnings per share (EPS) of $7.23 and revenue of approximately $34.6 billion, reflecting stable revenue growth as memory chip prices recover. Over the past year, Micron’s stock has gained 27.3%, while year-to-date it is up about 9.3%. The company continues to face challenges, including competition from Samsung and SK Hynix, as well as global supply chain disruptions.

Key metrics to watch during the earnings call include EPS, revenue growth, and gross margins, along with management’s guidance on production capacity and pricing trends. Investors should also pay attention to Micron’s strategic initiatives in AI and memory technology, as well as updates on geopolitical risks that may impact the supply chain.

Costco Wholesale

Costco Wholesale Corporation (NASDAQ: COST) is set to report its fourth-quarter earnings for fiscal 2024 on September 26, 2024. Expectations are for earnings of $5.08 per share on revenues of $79.93 billion. In the comparable quarter of fiscal 2023, the company reported earnings of $4.86 per share and revenues of $78.94 billion. The company has a solid track record, having surpassed earnings estimates in the past four quarters.

Additionally, Costco recently increased its membership fees by about $5, the first hike in seven years, which is expected to bolster the bottom line without significantly affecting store traffic. In Q3 2024, Costco reported revenues of $58.52 billion, up from $53.65 billion in the prior year, and a profit increase to $1.68 billion, or $3.78 per share, compared to $1.30 billion, or $2.93 per share, in the same quarter of 2023.

Accenture

Accenture (NYSE: ACN) will also report its earnings this week. The company has been a strong performer in the consulting and technology services sector, benefiting from increased demand for digital transformation and cloud services. Investors will be keen to hear about Accenture’s growth prospects, particularly in the areas of AI and cybersecurity, as well as any updates on its acquisition strategy.

Conclusion

This week promises to be eventful for the financial markets, with several key indicators and events that could significantly influence investor sentiment and market performance. Federal Reserve Chair Jerome Powell’s remarks will be closely watched for any hints on future monetary policy, especially in light of the recent interest rate cut. The release of new and pending home sales data will provide insights into the housing market’s health, while consumer sentiment surveys will offer a glimpse into the public’s economic outlook.

Earnings reports from major corporations such as Micron Technology, Costco Wholesale, and Accenture will also be in focus, providing valuable information on corporate performance and future prospects. Investors should remain vigilant and consider the potential implications of these developments on their investment strategies.

In summary, the combination of central bank communications, housing market data, consumer sentiment surveys, and corporate earnings reports makes this week a critical period for the financial markets. By staying informed and analyzing the available data, investors can better navigate the complexities of the current economic landscape.