As we moved into June, the markets showed a strong rally in the last three hours of trading on Friday, closing off the month on a high note. This upward momentum could set the stage for an intriguing week, says Jay Woods, chief strategist at Freedom Capital Markets (NASDAQ:FRHC).
Below is his take on what's likely to be hot and what's not.
Key economic data
This week promises a flurry of economic data releases. Key highlights for Woods include:
ISM Manufacturing Data: This index measures the activity level of purchasing managers in the manufacturing sector. A reading above 50 indicates expansion, while below 50 signals contraction.
JOLTS Data: The Job Openings and Labor Turnover Survey provides insights into job openings and labor market dynamics.
Weekly Jobless Claims: This report tracks the number of individuals filing for unemployment benefits for the first time.
May Unemployment Report: Perhaps the most critical, this report will shed light on the current state of the labor market.
With earnings season behind us, traders are closely watching these economic indicators to gauge market sentiment. The unexpected rally last week has kept bullish traders optimistic for now, says Woods.
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S&P 500 analysis
Last week, we focused on a bearish signal from Thursday, May 23rd, which suggested potential short-term market weakness. We advised monitoring the highs and lows of that day closely. If the market broke above the highs, it would likely continue its upward trend. Conversely, a break below could signal a test of the 50-day moving average, potentially leading to further declines to the 100-day moving average.
Indeed, the market dipped below that level, approaching the 50-day moving average, before rallying back within the range of the bearish signal. This rebound leaves traders wondering whether the Friday rally was a fluke or the beginning of sustained momentum towards all-time highs. This week's economic data, especially Friday's unemployment report, could provide clarity.
Bond market movements
The yield on the 10-year Treasury note, which influences borrowing costs for businesses and consumers, saw a significant rally before reversing course late last week. Typically, when the yield rises, stock prices fall. The yield's recent narrowing range and failure to achieve higher highs suggest it may stay range-bound for a few weeks. However, a breakout could prompt an inverse reaction in equities.
May unemployment
Scheduled for release on Friday, the May Unemployment Report is expected to show the rate holding steady at 3.9%, a historically low level despite a recent uptick. Last month’s slight increase reignited discussions about potential interest rate cuts. If the labor market shows signs of weakening, the Federal Reserve might consider cutting rates, even if inflation remains stubbornly high. This report will also set the tone for the following week’s Consumer Price Index (CPI) report and the Federal Open Market Committee (FOMC) decisions on June 12th.
Summer movie season
The Memorial Day weekend saw a disappointing box office performance, marking the worst since 1999, excluding the pandemic period. Movie theater chains like Cinemark Holdings (NYSE:CNK) and IMAX Corp (NYSE:IMAX) have performed relatively well this year, with year-to-date gains of 23% and 10%, respectively. However, AMC Entertainment Holdings (NYSE:AMC) has struggled, down 29% year-to-date. The lingering effects of last year’s writers' strike have impacted this summer's blockbuster lineup, which includes sequels like "Beverly Hills Cop: Axel F," "Bad Boys: Ride or Die," and the highly anticipated "Deadpool & Wolverine."
Earnings highlights
As the earnings season winds down, a few key retailers are in focus, notably Dollar Tree and Five Below (NASDAQ:FIVE). Both retailers face significant challenges, including the impact of shrinkage (theft and damage) on their bottom lines.
Stocks in focus
CrowdStrike Holdings Inc (NASDAQ:CRWD): After being affected by negative results from Salesforce, CrowdStrike will report its own earnings on Tuesday. The cybersecurity firm has seen a roughly 10% rally after each of its last three earnings reports, consistently beating analysts' estimates. However, the focus will be on future sales growth. Technically, the stock has been trending above its key moving averages but seems to have hit resistance around $360. Support levels to watch are $280 and $254.
Dollar Tree, Inc. (NASDAQ:DLTR): Down 17.5% this year, Dollar Tree has a history of significant price gaps following earnings reports. Other low-income demographic retailers like Dollar General and Five Below (NASDAQ:FIVE) have also struggled. Dollar Tree’s technicals show a long-term downtrend with resistance at the 200-day moving average and April’s high of $136.