Inflation, consumer confidence, Nike: What to know this week

After Federal Reserve Chair Jay Powell's comments hinting at more interest rate hikes in 2023 sent the three major indices lower last week, investors will once again be focused on the Fed's next moves with inflation data, two checks on consumer confidence, and results from Nike (NKE) highlighting the final week of June and the first half of 2023.

The Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation indicator, out Friday morning will be week's biggest economic data release.

Tuesday and Friday will bring consumer checks from The Conference Board and the University of Michigan, respectively, while housing data also dots the schedule.

On the earnings side, results from Nike, Carnival (CCL), Walgreens (WBA), and Rite Aid (RAD) will be key highlights.

Investors will look to close a strong month, quarter, and first half of 2023 on a high note after recording their worst week in months.

All three of the major averages closed the week lower with the Nasdaq Composite (^IXIC) experiencing its first weekly loss in the last eight, while the S&P 500 (^GSPC) snapped a five-week win streak. Stocks are still largely up in June, though.

Entering the final week of the month, the Nasdaq is up more than 7% while the S&P 500 has risen nearly 5% and the Dow Jones Industrial Average (^DJI) is higher by just over 2%. Through the first half of the year, the Nasdaq remains up more than 28% with the S&P sitting on gains north of 13%.

During two days of testimony on Capitol Hill, Powell called inflation "more persistent than we've expected," adding the central bank has a "long way to go" to bring inflation down. With limited data between now and the Fed's next policy announcement on July 26, Friday's inflation data will be even more closely watched.

Last week, Powell referenced "core" PCE as being particularly stubborn.

Data on Friday is expected to show "core" PCE — which strips out the costs of food and energy — rose 4.7% over the prior year in May, unchanged from April. The Fed targets 2% inflation, on average. Over the prior month, "core" PCE is expected to rise 0.4% in May.

"May core PCE inflation is likely to be softer (we project 0.29% MoM), but we expect non-shelter services inflation to remain stubbornly high in coming months," Citi's team of economists wrote in a note on Friday. "A resurgent housing market is raising further upside risks to 2024 inflation."

Data for new home sales and the S&P CoreLogic Case-Shiller U.S. National Home Price index are expected on Tuesday. Economists project home prices fell 2.6% year-over-year in April.

On the earnings front, Nike results will headline the list of the companies reporting. The nation’s leading athletic apparel brand has made progress offloading excess inventory over the last several quarters. But while the company already signaled it reached peak inventory bloat, some Wall Street analysts are still concerned inventory headwinds will weigh on gross margin growth.

Nike's report will provide a clearer picture of the state of wholesale retail inventories after Foot Locker (FL) warned of troubles during its most recent quarterly earnings report.

"Recent [North America] & Europe sportswear channel checks make it clear that demand for mass sportswear has potentially slowed, leaving a sizable inventory glut across the industry that is currently being promoted away...a potential headwind that could pressure NKE revenue & margin," Morgan Stanley equity analyst Alex Straton wrote in a note on Tuesday.

Broadly, markets might be searching for a new catalyst as the AI driven rally in tech stocks took a backseat to other momentum trades to end the week.

As Yahoo Finance's Jared Blikre pointed out on Friday, investors appeared to dump some recent winners to end the week, with semiconductors falling and Bitcoin hitting a new 52-week high.

Fundstrat head of research Tom Lee wrote in a note on Friday that the pull back last week was "overdue."

"The obvious question for everyone is whether this 2% pullback represents a local top (or even a major top) or is this a shorter term pullback that needs to be bought," Lee wrote.

Lee says stock market bears will point to more Fed rate hikes on tap, the potential for an earnings decline in the second half of the year, and a 1999-like bubble in AI. But Lee remains in the camp that inflation is cooling and believes that will play out in the week ahead with PCE and housing data.

"To us, this looks increasingly like an economy slipping into an expansion, not sliding into a recession," Lee wrote. "And this makes early cycle/risk-on positioning more appropriate."

Weekly calendar

Monday

Economic data: Dallas Fed Manufacturing Activity (-20 expected, -29.1 previously)

Earnings: Carnival (CCL)

Tuesday

Economic data: New home sales, May (675,000 annualized rate expected, 683,000 previously); New home sales, month-over-month, May (-1.2% expected, +4.1% previously); Durable goods, May (-0.9% expected, +1.1% previously); Conference Board Consumer Confidence (104 expected, 102.3 previously); S&P CoreLogic Case-Shiller, 20-City Composite home price index, month-over-month, April (+0.35% expected, +0.45% previously); S&P CoreLogic Case-Shiller 20-City Composite home price index, year-over-year, April (-2.6% expected, -1.15% previously)

Earnings: Jefferies Financial Group (JEF), Walgreens Boots Alliance (WBA)

Wednesday

Economic data: MBA Mortgage Applications, week ending June 23 (+0.5% prior); Wholesale inventories month-over-month, May (-0.1% expected, -0.1% previously); Retail inventories month-over-month, May (0.2% previously)

Earnings: Blackberry (BB), General Mills (GIS), Micron (MU)

Thursday

Economic data: First quarter GDP, third estimate (+1.4% annualized rate expected, +1.3% previously); First quarter personal consumption, third estimate (3.8% expected, 3.8% prior); Initial jobless claims, week ended June 24 (265,000 expected, 264,000 previously); Continuing jobless claims, week ended June 17 (1.78 million expected, 1.76 million previously); Pending home sales month-over-month, May (-0.5% expected, 0.0% previously)

Earnings: McCormick (MKC), Nike (NKE), Rite Aid (RAD)

Friday

Economic news: Personal income, month-over-month, May (+0.4% expected, +0.4% previously); Personal spending, month-over-month, May (+0.2% expected, +0.8% previously); PCE inflation, month-over-month, May (+0.1% expected,+ 0.4% previously); PCE inflation, year-over-year, May (+3.8% expected, +4.4% previously); "Core" PCE, month-over-month, May (+0.4% expected, +0.4% previously); "Core" PCE, year-over-year, May (+4.7% expected; +4.7% previously); University of Michigan consumer sentiment, June, final reading (63.9 expected, 63.9 previously)

Earnings: Constellation Brands (STZ)

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