Jobs report, AI hype in focus after debt ceiling deal: What to know this week

Investors in the week ahead should see debt ceiling worries fade during a holiday-shortened week.

This week's event will be punctuated by the May jobs report due out Friday as focus moves away from US default fears and towards the Federal Reserve's next rate announcement on June 14.

Late Saturday, President Biden and House Speaker Kevin McCarthy announced a tentative debt ceiling deal set to last two years with lawmakers now set to begin the task of passing this legislation before a June 5 deadline.

Outside of Friday's jobs report, data on the housing market and consumer confidence will feature alongside a sprinkling of corporate earnings reports. US markets will be closed Monday for Memorial Day.

Uncertainty around the US debt ceiling had served a larger role in investor conversation than market action in recent weeks, with more hype for the current AI boom pushing tech stocks higher last week. And that conversation should fade this week, clearing the way for more AI thought leaders to take up more oxygen in the room.

Earnings out of chipmaker Nvidia (NVDA) pushed the company towards a $1 trillion market cap and led tech higher, with the Nasdaq Composite (^IXIC) rising 2.5% last week while the S&P 500 (^GSPC) rose 0.3% and the Dow (^DJI) fell 1%.

Friday's May jobs report is expected to show 180,000 nonfarm payroll jobs were added to the US economy last month with the unemployment rate ticking up slightly to 3.5%, according to data from Bloomberg.

In April, the US economy added an unexpectedly strong 253,000 nonfarm payroll jobs while the unemployment rate dropped to 3.4%, its lowest level since May 1969.

This report will be one of several key data points reviewed by the Federal Reserve ahead of its next Federal Open Market Committee meeting set for June 13-14.

Expectations for the central bank's next move have become increasingly mixed as economic data continues to come in stronger than expected. After inflation data last week data from the CME Group showed markets pricing in a better than 50% chance the Fed raises rate another 0.25% on June 14; in late April investors thought it more likely the Fed would cut rates than raise them come June.

"Inflation is running at more than double the 2% target rate and the unemployment rate is lower than every FOMC participant's estimate of the longer-run rate," Bank of America's US economics team led by Michael Gapen wrote in a note to clients on Friday.

"We will get one more jobs report (on June 2) and one more CPI print (June 13) before the June decision. And another one of each before the July meeting. Roughly, we think 200k+ growth in nonfarm payrolls, a steady or falling unemployment rate and core CPI of around 0.4% m/m would push the needle towards additional tightening."

On the corporate side, earnings from technology and retail companies will be in focus next week as the likes of HP (HPQ), Salesforce (CRM), Okta (OKTA), Dell (DELL), Macy’s (M) and Lululemon (LULU) report quarterly results.

Those reports will shed further light on what's been a mixed picture on the consumer this earnings season. Some companies have warned of a discretionary slowdown while others suggest the apparel market is booming.

Broadly, S&P 500 companies have been beating Wall Street estimates, though the index reported its second straight quarter of aggregate earnings declines. According to data from FactSet, S&P 500 earnings fell 2.2% during the first quarter while 81 companies have provided negative EPS guidance, the highest since the third quarter of 2019.

Investors will also get more earnings results from the AI industry with C3a.i. (AI) expected to report earnings on Wednesday. Shares of the tech company have been one of the largest beneficiaries of the AI boom, rising more than 190% so far this year.

And while AI announcements had already been the buzz of first quarter earnings season, this past week saw the hype from investors reach a fever pitch.

On Thursday, Nvidia stock soared nearly 25% as the company offered current quarter revenue guidance that was more than 50% above Wall Street estimates. A day later, shares of Marvell Technology (MRVL) rose more than 30% after the company projected revenue attributable to AI could double in the next year.

"A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process," Nvidia CEO Jensen Huang said Thursday. "We are significantly increasing our supply to meet surging demand for them."

And investors have started to view AI hype as a contributing factor to the market's overall rally this year, which has seen the Nasdaq gain 24%.

"US markets are powered by the Al theme, which tends to increase rates sensitivity even further," strategists at Citi wrote in a note to clients last week. "This theme is of course highly specific to the US market, and we would therefore expect US outperformance when the Fed is done."

Citi added: "While price moves for AI related stocks have clearly been extreme especially at a time when monetized use cases are still in the future, and with barriers to entry not overly high, we would still expect that it is too early to fade the moves before AI has even developed far enough to be able to disappoint expectations."

And with Fed expectations far from finding consensus of late, it seems heading into the summer of 2023 the "safest" place for investors to hide might be on the AI hype train.

Michael Hartnett at Bank of America Global Research wrote Friday that, "No conviction in macro narrative of 2023 means big conviction in new micro narrative of AI."

Weekly calendar

Monday

Markets closed for Memorial Day.

Tuesday

Economic data: Dallas Fed Manufacturing Activity, May (-17 expected, -23.4 previously); FHFA House Price Index, March (+0.2% expected, +0.5% previously); S&P CoreLogic Case-Shiller, 20-City Composite, month-over-month, March (-0.05% expected, +0.06% previously); S&P CoreLogic Case-Shiller 20-City Composite, year-over-year, March (-1.70% expected, +0.36% previously); Conference Board Consumer Confidence, May (99.1 expected, 101.3 previously)

Earnings: Box (BOX), HP Inc. (HPQ), Hewlett Packard Enterprise (HPE), U-Haul (UHAL)

Wednesday

Economic data: MBA Mortgage Applications (-4.6% previously); MNI Chicago PMI, May (47.0 expected, 48.6 previously); JOLTS Job Openings, April (9.48 million expected, 9.59 million previously); Federal Reserve Beige Book

Earnings: Advance Auto Parts (AAP), Capri Holdings (CPRI), Chewy (CHWY), Crowdstrike (CRWD), C3.ai (AI), Nordstrom (JWN), Okta (OKTA), Purestorage (PSTG), Salesforce (CRM)

Thursday

Economic data: Challenger jobs cuts, year-over-year, May (+175.9% previously); Unit labor costs, first quarter, final (+6.2% expected, +6.3% previously); Nonfarm productivity, first quarter, final (-2.6% expected, -2.7% previously); Weekly initial jobless claims (235,000 expected, 229,000 previously)

Earnings: Broadcom (AVGO), Dell Technologies (DELL), Dollar General (DG), Five Below (FIVE), Hormel Foods (HRL), Land’s End (LE), Lululemon (LULU), Macy’s (M), Zscaler (ZS)

Friday

Economic data: Nonfarm payrolls, April (+180,000 expected, +253,000 previously); Unemployment rate, April (3.5% expected, 3.4% previously); Average hourly earnings, month-over-month, May (+0.3% expected, +0.5% previously); Average hourly earnings, year-over-year, May (+4.4% expected, +4.4% previously); Average weekly hours worked, May (34.4 expected, 34.4 previously); Labor force participation rate, May (62.6% expected, 62.6% previously)

Earnings: No notable earnings.

Monday

Markets closed for Memorial Day.

Tuesday

Economic data: Dallas Fed Manufacturing Activity, May (-17 expected, -23.4 previously); FHFA House Price Index, March (+0.2% expected, +0.5% previously); S&P CoreLogic Case-Shiller, 20-City Composite, month-over-month, March (-0.05% expected, +0.06% previously); S&P CoreLogic Case-Shiller 20-City Composite, year-over-year, March (-1.70% expected, +0.36% previously); Conference Board Consumer Confidence, May (99.1 expected, 101.3 previously)

Earnings: Box (BOX), HP Inc. (HPQ), Hewlett Packard Enterprise (HPE), U-Haul (UHAL)

Wednesday

Economic data: MBA Mortgage Applications (-4.6% previously); MNI Chicago PMI, May (47.0 expected, 48.6 previously); JOLTS Job Openings, April (9.48 million expected, 9.59 million previously); Federal Reserve Beige Book

Earnings: Advance Auto Parts (AAP), Capri Holdings (CPRI), Chewy (CHWY), Crowdstrike (CRWD), C3.ai (AI), Nordstrom (JWN), Okta (OKTA), Purestorage (PSTG), Salesforce (CRM)

Thursday

Economic data: Challenger jobs cuts, year-over-year, May (+175.9% previously); Unit labor costs, first quarter, final (+6.2% expected, +6.3% previously); Nonfarm productivity, first quarter, final (-2.6% expected, -2.7% previously); Weekly initial jobless claims (235,000 expected, 229,000 previously)

Earnings: Broadcom (AVGO), Dell Technologies (DELL), Dollar General (DG), Five Below (FIVE), Hormel Foods (HRL), Land’s End (LE), Lululemon (LULU), Macy’s (M), Zscaler (ZS)

Friday

Economic data: Nonfarm payrolls, April (+180,000 expected, +253,000 previously); Unemployment rate, April (3.5% expected, 3.4% previously); Average hourly earnings, month-over-month, May (+0.3% expected, +0.5% previously); Average hourly earnings, year-over-year, May (+4.4% expected, +4.4% previously); Average weekly hours worked, May (34.4 expected, 34.4 previously); Labor force participation rate, May (62.6% expected, 62.6% previously)

Earnings: No notable earnings.

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