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Investing Action Plan: Fed Meeting; Lennar, Oracle, Adobe Earnings

June 9, 2023

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A four-day rally gave the Dow industrials a better-than-3% gain so far for June. The S&P 500 and Nasdaq are up almost that much. While early gains on the stock market this year relied primarily on a narrow roster of tech names, the past week showed increasing breadth. The Federal Open Market Committee’s rate policy decision on Wednesday will be the coming week’s centerpiece. But earnings from Lennar (LEN), Oracle (ORCL) and Adobe (ADBE) will also update segments with some fast-moving stocks.

Stocks To Watch: 5 Dow Giants Near Buy Points

Boeing (BA), JPMorgan Chase (JPM), Cisco Systems (CSCO), McDonald’s (MCD) and Walmart (WMT) are five Dow Jones industrials stocks near buy points as the stock market rally shows signs of broadening out. All five hail from different sectors, hinting at widening market leadership. Boeing and Walmart are already actionable as they retake support within consolidations. JPMorgan is near a breakout in a six-week flat base, as the banking giant stands out among financials. Cisco is not the leader in its industry, but is trying to make a move and may be shaping a handle on its 10-week cup pattern. McDonald’s has done well in a strong sector, eyeing a possible early entry in a new flat base.

Fed Meeting Could Mark A Change

The Federal Reserve is expected to skip a rate hike at its two-day policy meeting that wraps up on Wednesday at 2 p.m. ET. But Wall Street’s reaction may be shaped by perceptions of what happens next. As of Friday morning, markets were still pricing in 66% odds of a quarter-point rate hike on July 26. Those odds could shift on Wednesday when policymakers lay their cards on the table. New quarterly economic projections released with the 2 p.m. policy announcement, including the expected year-end level for the Fed’s key interest rate, will reveal the breadth of support for further tightening. Investors also will hang on every word of chair Jerome Powell’s 2:30 p.m. news conference, which will sketch out the Fed’s latest thinking on the impact of the bank crisis, the tight labor market and, quite possibly, the recent stock market rally.

U.S. Economic Optimism Is Stuck In A Rut As Debt-Ceiling Deal Gets Thumbs-Down

Stock Market Perspective: Stocks Rally Out Of Solid Q1 Season

A second straight up week propelled the Dow industrials toward the 34,000 mark for the first time since early May. The S&P 500 sits on a four-week gain, and now back above 4,300. And the Nasdaq composite’s seven -week rally put it at its highest mark in 14 months. S&P Capital IQ reported, as of Tuesday, 51% of S&P 500 stocks were in positive territory for the year. S&P 500 Q1 2023 EPS came in better than expected, falling 1.2% year-over-year, versus the March 31 forecast for a 6.5% decline. Estimates now point to a 7.5% drop in Q2, a 0.5% dip in Q3, and an 8.3% increase in Q4. For all of 2023, S&P Capital IQ sees the S&P 500 turning in a 0.4% decline, followed by an 11.7% advance in 2024.

Earnings Season: A Look At AI, Cloud Momentum

Oracle (ORCL) shares ride a four-month advance, up almost 35% year-to-date heading into the software heavyweight’s fiscal Q4 earnings report late Monday. Four analysts on Friday raised their price targets to between 106 and 130. Deutsche Bank says Oracle’s momentum appears durable in the cloud and software-as-a-service businesses. License revenue, “the greatest swing factor,” will be closely watched. Citi also notes strong cloud momentum across “corporate and generative artificial intelligence.” Oracle earnings turned higher in Q3, after three quarters of no growth. Analysts see a modest 2.5% advance in Q4, according to FactSet, before accelerating in the coming fiscal year.

Homebuilders: Lennar Rallies Into Q2 Report

Lennar (LEN) reports Q2 results late Wednesday, with homebuilder stocks charging higher amid a tight U.S. housing market. Wall Street expects Lennar’s earnings per share to sink 49% to $2.31, with revenue sliding 14% to $7.19 billion. Analysts see full-year EPS dropping 36% to $10.01 and sales falling 13% to $29.35 billion. Lennar’s earnings have decelerated over the past four quarters. Revenue growth slowed from 30% in Q2 of last year.

Homebuilder Stocks Surge To New Highs Ahead Of Fed Meeting, Lennar Earnings

The Building-Residential/Commercial industry group ranks No. 5 out of 197 tracked by IBD with homebuilder stocks collectively advancing 29% year to date. Lennar has gained 24%. Fellow homebuilder KB Home (KBH) is expected to report its fiscal Q2 earnings on June 21. PulteGroup (PHM) and Taylor Morrison Home (TMHC) will announce financials in July, which could give a lift to homebuilder stocks. All three stocks are trading at fresh highs.

Econ Calendar: Inflation, Regional Fed Surveys, Consumer Confidence

The batch of economic data on tap in the coming week, including a big inflation report on Tuesday, could shift Fed rate-hike expectations, but probably for July’s meeting, not this week’s. The consumer price index for May, out Tuesday at 8:30 a.m., is seen rising 0.3% on the month, with the annual inflation rate easing to 4.1% from 4.9%. The core CPI, excluding food and energy, is forecast to rise 0.4%, lowering the core inflation rate to 5.3% from 5.5%. The producer price index, out Wednesday at 8:30, is expected to show wholesale inflation slowing to 1.1% from 2.3%. Core PPI inflation is forecast to ease to 2.9% from 3.2%. Retail sales for May, out Thursday at 8:30 a.m., are expected to be flat vs. April levels, with a modest 0.1% rise excluding autos. Industrial production, out Thursday at 9:15 a.m., should show overall May output rising 0.1%, but with a solid 0.4% rise in manufacturing output.

Stock Market Earnings: June 12 — 16

Jabil (JBL) plans to release its fiscal third-quarter results early Thursday. Wall Street predicts the contract electronics manufacturer will earn $1.88 a share, up 12% year over year, on sales of $8.19 billion, down 2%. Jabil stock is in record-high territory after breaking out of a cup base.

Kroger (KR) reports Q1 results early Thursday after three quarters of decelerating sales growth. FactSet analysts expect earnings to slide 1.4% to $1.43 per share on a 1.3% drop in sales to $45.19 billion. Kroger is attempting to acquire privately held grocer Albertsons in a $24.6 billion deal.

Adobe (ADBE) will report its Q2 results late Thursday. Analysts expect the design software maker to earn $3.79 a share, up 13% year over year, on sales of $4.77 billion, up 9%. Adobe stock is in a cup base with a 451.15 buy point.