Stocks Coming Off Best Week Of The Year

Key Takeaways

• Consumer Sentiment Rises, Driving Stock Gains Amid Positive Economic Data
• Focus Shifts To Retail Earnings And Fed's Interest Rate Outlook
• AI Momentum Boosts AMD Shares; Interest In Earnings Reports Grows

---

Stocks closed out Friday with their best week of the year. While each of the major indices were up less than 0.5%, the overall gains were impressive. The Nasdaq Composite led the way with a gain of 5.3%. That was followed by the S&P 500, which was up 3.9%. Both the Russell 2000 and Dow Jones Industrial Average added 2.9%.

Last week's gains came following economic data that showed the economy, while slowing, is still growing. That data was also buoyed late Friday morning when the latest read on Consumer Expectations and Consumer Sentiment were released. Consumer Sentiment was up in this most recent report and that was the first time in five months it has seen an increase. This week is going to be lighter on economic data; however, we will have some important earnings announcements.

I believe this is an important week for markets as several big-name retail companies are scheduled to report earnings. Some of the names we'll hear from include Lowe's, before the open tomorrow. Then, both Macy's and Target will report before the open on Wednesday. There are a couple things I'm going to be listening for when these companies report.

Lowe's has a lot of do-it-yourself customers, especially in areas such as gardening and small home projects. Therefore, I'll be interested in whether or not people are making purchases that suggest they are getting ready to put their house on the market in anticipation of lower interest rates and an opportunity to move, or if they are making the types of purchases that might suggest they plan to stick around in their current homes.

For Macy's and Target, I'll be looking to triangulate what they report relative to what Walmart reported last week. With respect to Target, Walmart already reported strong spending across product categories. Therefore, I'm interested if Target is seeing the same thing or if they are seeing customers "trade down" to Walmart. Similarly, I'm curious if Macy's is seeing solid customer demand or if they too are losing customers in that waterfall-type effect to Target.

Speaking of earnings, we're now 93% of the way through earnings season. As of last Friday, the blended growth rate, which includes those companies that have reported and forecasts for those still to report, stands at 10.9% according to FactSet. The 12-month forward-looking price-to-earnings (P/E) ratio for the S&P 500 currently stands at 21, which is elevated by historical standards, therefore, it could suggest stocks are reaching a plateau.

As I mentioned above, it is a light week in terms of economic reports; however, there are two big items on the list and those are the release of the minutes from the most recent Federal Reserve Open Market Committee (FOMC) meeting along with Chairman Powell's comments at the end of the week from Jackson Hole.

We are seeing a lot of fluidity with respect to interest rate expectations. A week ago, according to the CME Fed Watch Tool, it was a fifty-fifty chance rates would be cut either a quarter or half point. Heading into Monday, those probabilities have shifted to a 73% probability of a quarter point cut. Therefore, I'm very interested in not only what was discussed at the last meeting, but also what Chairman Powell has to say later this week.

Taking a look at some individual stocks making news this morning, shares of Estee Lauder are down 6% in premarket following disappointing earnings. The company specifically made mention of weak sales in China and announced the CEO would be stepping down next year. Meantime, shares of Advanced Micro Devices are higher by 2% after the company announced it was purchasing ZT Systems for $4.9 billion. Normally, an acquiring company tends to see its stock fall; however, I believe in this case we're seeing evidence of the Artificial Intelligence (AI) trade.

As I've mentioned a number of times, I am still waiting to hear how companies investing in AI plan to monetize those projects. Companies that have failed to articulate those plans saw their stocks take a hit when announcing earnings this quarter. However, the companies supplying the chips continue to be beneficiaries of AI momentum and plans for greater investment in the technology. I believe that is why shares of AMD are higher this morning.

For today, I'm interested if stocks can continue the momentum from last week. Like I mentioned, we have some earnings before the open tomorrow and tonight after the close, Palo Alto Networks will report. As always, I would focus on your investing plans and long-term goals.

By JJ Kinahan, Senior Contributor