Markets got off to a mixed start this week with the Dow Jones falling 0.44%, the S&P 500 inching 0.23% higher, and the tech-heavy NASDAQ leading gains with a 0.98% increase. Investors seemed to move back to tech stocks as opposed to assets standing to benefit the most in a reopened economy. Some of the recent news over new quarantine measures in Europe may have impacted that, but are hopefully more of a temporary setback as vaccines are distributed globally and economies continue to recover from the lingering effects of the pandemic.
Outside of those updates and with an eye toward the market's renewed focus on the Federal Reserve, economic data is heavy this week with the monthly Employment Situation Report scheduled for release Friday morning serving as the highlight of the week.
All About Jobs
The June jobs report is scheduled for Friday morning with analysts expecting more jobs to be added than last month. May’s jobs report showed the economy added 559,000 non-farm jobs. That number was far higher than April’s 226,000 but below the 720,000 economists were expecting. Current estimates for June are for 680,000 jobs, a significant increase over previous months albeit slightly less than analysts expected for May.
Along with with all those added jobs, the unemployment rate is expected to drop to 5.7%. That would only represent a 0.1 percentage point decrease from the 5.8% reported in May, however, the unemployment rate already dropped significantly in May from the 6.1% in April. It is likely that people re-entering the labor force will cushion the impact of all those new jobs on the unemployment rate. The downward trend of unemployment is a good sign of an economic recovery and a slow pace actually might be better than a rapid drop in unemployment as it quells some fears of an overheating economy as many traders remain concerned about inflation.
In addition to the monthly jobs report, the ADP employment change is expected to show 400,000 jobs added in non-farm private sector employment. Lastly, initial unemployment claims are expected to drop to 400,000l, slightly less than the 411,000 reported last week.
Inflation, Inflation, Inflation
There have been many discussions and opinions about inflation recently with several measures of prices rising faster than most expected. The Federal Reserve has repeatedly described these issues as transitory, given the base-effect and unevenness of the global reopening. Global shortages caused by factory shut downs a shortage of shipping capacity have led to prices surging in some sectors as demand increased faster than expected. Over a third of the rise in CPI in both April and May can be attributed to just the rise in prices of used vehicles.
These pressures are expected to be a short-term problem as experts predict shortages such as the chip shortage to be resolved by the end of the year. Thus, the Fed has described these problems as "transitionary pressures" as the economy recovers from the pandemic. These pressures are having a significant impact currently but will not be as significant over the long term. Additionally, the Fed did help calm some inflation concerns by predicting two interest rate hikes by the end of 2023, still a long way off but it suggests the Fed is keeping an eye on things and is ready to act if inflation continues to rise.
Earnings
Earnings are relatively light this week but some big names are set to report such as Bed, Bath & Beyond (BBBY), Constellation Brands (STZ), General Mills (GIS), Walgreens Boots Alliance (WBA), and McCormick (MKC).
Walgreens is currently expected to report earnings per share of $1.15 for its second fiscal quarter after an EPS of $0.85 in its year-ago quarter. Walgreens has managed to outperform estimates since its last second fiscal quarter, and if it does so again, may mean more good news for CVS Health Corporation’s (CVS) second quarter earnings scheduled for release on August 4.
Investors should also keep an eye on meme stock BBBY after it reports quarterly earnings. BBBY has experienced at least greater than 10% swings in share price after its past four reported quarterly earnings, with it only gaining ground after last year’s third-quarter results. BBBY did miss on its earnings estimates two times it fell but its 2021 first fiscal quarter beat out projections and the stock fell more than 12% regardless. It’s quarterly performance may not give investors too much insight into other firms though as it doesn’t have any direct large competitor with Target (TGT) being perhaps the closest fit.
Constellation Brands is expected to report an EPS of $2.36, down slightly from $2.44 a year ago. Meanwhile, McCormick earnings per share are expected to be $0.62, far lower than the $1.47 in its year-ago quarter. Finally, estimates are for General Mills to report EPS of $0.85, also down from last year’s $1.10.
Economic Events this Week
Tuesday
- 10:00 a.m. - Consumer Confidence
Wednesday
- 8:15 a.m.- ADP Employment Change
- 10:30 a.m. - EIA Crude Oil Inventories
Thursday
- 8:30 a.m. - Initial Claims
- 8:30 a.m. - Continuing Claims
Friday
- 8:30 a.m. - Nonfarm Payrolls
- 8:30 a.m. - Unemployment Rate
Earnings Reports this Week
Tuesday:
Before the bell:
FDS, EPAC
After the bell:
AVAV
Wednesday:
Before the bell:
GIS, STZ, BBBY
After the bell:
MU, SJR
Thursday:
Before the bell:
WBA, MKC, SMPL, LNN
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