This Week’s PRISM Market Recap: The Bull and Bear Report
This week, earnings wrapped up with additional major retail reports and included the highly anticipated NVIDIA (NVDA) announcement while further economic commentary was released. Some normalcy is expected to return next week as companies attend conferences and scheduled macro news slows.
Market data and observations are constantly in motion each day, but what dictates the direction of the market is how the information is interpreted. Ultimately, positive or negative takeaways will determine market reactions.
As we review this past week, PRISM uncovers the bullish and bearish talking points around the data and information that circulated:
A Green Perspective: The PRISM Bull
Once again, AI and Tech took center stage as NVIDA posted another meaningful beat and raise against a very high bar as it added ~$275M, in market value. Microsoft (MSFT) was another bright spot related to AI as takeaways from the Build conference focused on AI-enabled PCs and Copilot extensions. Semi player, Analog Devices (ADI) shed light on the start to cyclical recovery as inventory across customers is stabilizing.
Positive indications from retail reports came from Norwegian Cruise Lines (NCLH) as they raised FY guidance and cited strong travel demand. Additional positive retail reports came from TJX, Ross Stores (ROST), Ralph Lauren (RL), Macy’s (M) and Deckers (DECK).
On a macro level, coming off a softer April, strength was seen in May flash PMIs and lower claims. JPMorgan (JPM) increased its 2024 NII guidance while Morgan Stanley (MS) raised its 12-month target price for the S&P 500 by 20%, quelling some bearish commentary. Additionally, this week marked the fifth straight week of inflows to US equities as the YTD totals ~$100Bn.
Red Perspective: The PRISM Bear
In the May FOMC minutes, it is believed that inflation would return to the 2% target over the medium term however, its lack of recent further progress toward the objective proves troublesome. Disappointing economic data through April has not increased policymaker confidence indicating the “higher-for-longer” approach to rates will continue with the possibility of tightening policy further. Fed’s Waller said he needs to see “several more months” of good inflation data before getting enough comfort on cooling trend to ease.
Following the FOMC report, Goldman (GS) pushed the timing of its first rate cut from July to September. UBS cited that CTAs are largely done after buying $110-$120B of equites in the past month, which dampened systematic fund support.
Other retail earnings proved negative, as Target (TGT) and Lowes (LOW) traded heavily as concerns around consumer softness on discretionary spending by lower-income consumers continue. Additionally, Target intends to implement price cuts due to softer operating leverage. Live Nation (LYV) is also under scrutiny as the DOJ is suing the company for anti-trust violations.
PRISM Takeaways
As we digest the bull and bear commentary, PRISM combines the two viewpoints and develops some key takeaways on market insights for the week and provides what to look for moving forward:
Macro Indicators
In addition to April macro reports coming in soft, Fedspeak provides further insight on the economy as the “higher for longer” narrative becomes more prominent than it had been previously. As rates continue to hold higher and now hikes are now being considered, impacts will reverberate to banks that then historically have shown are reflected in mortgage rates etc. which could impact the housing market as well. While Big Banks have larger balance sheets and typically more government protection, regional banks may be even more likely to come under pressure if a rise in rates occur.
Consumer Health
In addition to macroeconomic indicators, those paying close attention to company insights from earnings releases, can gather takeaways to further define the health of the consumer. While headlines cite mixed consumer reports, combining some common themes can produce a narrative capturing the economic health of individuals. Continued commentary such as softening in spending due to higher prices specifically, from the low-income consumer coupled with increased spending reported by credit card companies, may indicate an overall financially troubled consumer.
Continued Theme: AI
What was first thought to be a “hot trend” has now become a permanent fixture as AI reigns on Wall Street. According to FactSet, this earnings season included the second highest number of S&P companies that cited “AI” on earnings calls, over the past 10 years. Once thought of as a phenomenon specific to the Tech sector, AI is now ambiguous as it’s utilized and developed across a wide variety of industries. Investors continue to support companies utilizing AI in their business. This current behavior created pent up anticipation for NVIDA’s announcement as the company is considered the chip leader on the cusp of AI innovation. Their positive report is a key indicator of the strength and direction of AI.
