US Stocks Open Higher as Attention Shifts to Inflation Report
Stocks Build on Gains as Inflation Report Looms
US stocks opened higher on Monday, ready to build on a string of gains as attention turned to the coming inflation report seen as a potential starting gun for interest rate cuts.
Market Performance
The S&P 500 (^GSPC) rose roughly 0.2%, while the tech-heavy Nasdaq Composite (^IXIC) moved up about 0.3%. The Dow Jones Industrial Average (^DJI) also rose 0.3%, coming off the best week of the year for the blue-chip index.
May’s Market Rally
Stocks have come back strong in May on the back of better-than-expected earnings and a revival of optimism for a Federal Reserve easing in monetary policy. The Dow notched eight straight daily wins in a row on Friday — though a dearth of economic releases likely played a part.
Impact of Inflation Data on Markets
After recent hot inflation data, markets have been more skittish as investors have increasingly priced in “no landing,” where price increases don’t come down to the Fed’s target but the economy keeps growing.
Economic Releases to Watch
This week brings a flood of economic releases as potential catalysts, with the Consumer Price Index update on Wednesday the star. The CPI update for April will shed light on whether inflation is staying sticky into the second quarter amid some belief on Wall Street that the report will mark a faster descent and set the stage for more than one rate cut this year.
GameStop Soars 70% After Social Media Star ‘Roaring Kitty’ Post
GameStop Shares Surge
GameStop (GME) shares soared as much as 80% Monday and were temporarily halted for volatility after ‘Roaring Kitty’, seen as the kickstarter of the meme frenzy during the pandemic, posted for the first time since 2021.
Sunday’s post on X included a drawing of a man leaning forward, appearing to be playing a video game.
Roaring Kitty, identified in 2021 as Keith Gill, became a prominent figure followed on Wall Street Bets and Youtube for his bullish stance on GameStop (GME).
He posted videos about why GameStop was poised to go higher and testified before congress in February 2021, following the massive short squeeze spurred by an army of retail traders.
Stocks Rise to Begin CPI-Focused Week
Investors Eye Inflation Report
Stocks opened higher Monday as investors turned their attention to the latest monthly inflation report due out this week for clues to how the Federal Reserve will move on interest rates this year.
The S&P 500 (^GSPC) rose roughly 0.2%, while the tech-heavy Nasdaq Composite (^IXIC) moved up about 0.3%. The Dow Jones Industrial Average (^DJI) also added about 0.3%, eyeing a ninth straight daily win. The blue-chip index notched its best week of the year on Friday.
On Wednesday, investors will find out whether the stickier-than-expected inflation trend continued into the second quarter with the release of the Consumer Price Index (CPI) reading for April.
On the retail spending front, quarterly results from Home Depot (HD) due out Tuesday and Walmart (WMT) on Thursday may give insight into the health of the US consumer.
Netflix Stock Rallies Ahead of Upfront Event
Positive Momentum for Netflix
Here’s an interesting, fun fact on Netflix (NFLX) you probably didn’t realize.
The stock has rallied 12% since May 1 and is now trading at the levels seen before the company’s disappointing earnings day in late April.
In a new note this morning, JPMorgan analyst Doug Anmuth credits the rebound to “1) increased comfort with both the 2024 reported revenue outlook and NFLX’s decision to no longer report subscribers beginning in 2025; 2) recognition that NFLX is not subject to heavy AI-driven capex intensity like Meta, Alphabet, and Amazon; and 3) excitement into the Upfront presentation on May 16.”
The annual Upfront presentation is when TV networks and streaming services pitch their programming and ad products to advertisers and agencies.
Anmuth thinks Netflix will have bullish things to say at the event that could be a catalyst to the stock:
“At the Upfront we expect an update to the 23 million plus ad tier monthly active user (MAU) disclosure, with our conversations suggesting investors are looking for 35-40 million plus ad tier MAUs, including the benefit of the T-Mobile bundle. Outside of ad tier metrics, we expect updates on the upcoming content slate and NFLX’s sports strategy, with articles suggesting NFLX could host two NFL games on Christmas later this year. NFLX would bring the NFL large global distribution while the games could serve as a boost to NFLX’s ad tier and enable the company to actively promote upcoming content. Finally, we look for progress around improving the ad product, tech, and sales, with some investors expecting a 3P demand side platform announcement.”
Bullish Trading Call on Walmart into Earnings from EvercoreISI
Positive Outlook for Walmart
Walmart (WMT) stock has been lagging the S&P 500 the past month as sticky inflation data calls into question the spending power of US consumers.
There has been some chatter on the Street of extra-conservative guidance from Walmart when it reports earnings this Thursday morning.
But Evercore ISI’s retail analyst Greg Melich is putting those worries to the side, adding Walmart to his tactical buy list into the results.
Said Melich this morning:
“We believe the company is executing at a high level while pursuing initiatives such as digital advertising, Walmart Plus, and automation. Even a modest improvement in digital profitability (before considering incremental advertising/alternative profit opportunity) provides a considerable margin capture opportunity. Our sense is that the company will speak to a fairly steady low to middle-income consumer, in addition to higher income share capture, with positive traffic and share gain reasons for the commentary to skew constructive through the year. Normally Walmart does not raise full-year EPS and comparable sales guidance in 1Q, but we do see them taking a positive tone with respect to underlying momentum in the business. This may prove especially pronounced in international operations — which continue to see positive double-digit percentage comparable sales, with positive industry commentary on Walmart’s continued share capture likely underappreciated by investors.”
Save this Date: May 20, JPMorgan Investor Day
Investor Day Expectations
With its stock up a cool 8.7% in the past month on the back of expectations for higher-for-longer interest rates, JPMorgan’s (JPM) May 20 investor day is coming into focus.
Jefferies analyst Ken Usdin is out with a note this morning, sticking with a Buy rating going into the investor day, but hiking his price target to $227 from $215. He expects a “focus on market share gains, investment spending, and efficiency” on the part of JPM execs.
“While the net interest income guidance seems conservative with higher-for-longer rates, we see JPM continuing to slow-play guide updates,” added Usdin.
Goldman Not Banking on Major Inflation Slowdown
Sticky Inflation Expected
Sticky inflation is likely to stay sticky in 2024.
Ahead of this week’s key CPI Index report, Goldman Sachs is calling out the potential for disinflation in some important categories as the year treks along. Even still, Goldman’s macro team forecasts inflation to stay above the Fed’s preferred 2% target.
Here’s Goldman’s top economist Jan Hatzius:
“We see further disinflation in the pipeline in 2024 from rebalancing in the auto, housing rental, and labor markets, though we expect offsets from continued catch-up inflation in healthcare, car insurance, and housing. We forecast year-over-year core CPI inflation of 3.5% and core PCE inflation of 2.7% in December 2024.”
