The Week Ahead

Monday	Tuesday	Wednesday	Thursday	Friday
–	Target (TGT) CrowdStrike (CRWD)	ADP Employment Job Openings Fed Beige Book Semiannual Monetary Policy Report to Congress	Kroger (KR) Broadcom (AVGO) Costco (COST) Semiannual Monetary Policy Report to Congress	Nonfarm Payrolls

Macro Movers

With significant earnings reports completed and January’s data casting doubt on the “immaculate disinflation” narrative, the market’s focus shifts to labor data for February to confirm January as an anomaly and restore confidence regarding inflation.

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ADP: Private sector job creation for February is forecasted to reach 150k, up from January’s 107k. As per normal, the money numbers will be found within the “Pay Insights” section, detailing wage trends that carry inflation implications. Bulls are hoping for lower increases to reinforce the notion that January’s elevated data was an anomaly.

Job Opening: Consensus forecast is for 8.9 million, slightly down from the prior 9 million. This is a “thread-the-needle” report. Stocks would love a consensus result. Too high, stocks may wither on concerns associated with a hawkish Fed and an overheating economy. Too low, stocks crumble amid recession fears.

Fed Beige Book: This qualitative report provides color on economic trends across the 12 Federal Reserve Districts. Strategists scrutinize the report for hints on the Fed’s next move.

Semiannual Monetary Policy Report to Congress: Twice a year, the Chairperson of the Federal Reserve meets with both Houses of Congress. Before fielding questions, Chairperson Powell submits an identical statement to each House. This statement typically echoes the Fed’s stance from the prior meeting. Powell’s responses to questions tend to be remarkably consistent with that stance. While I anticipate this to be a nonevent, there are instances when the market reacts – positively or negatively – on a fresh interpretation of dated information.

Nonfarm Payrolls: The Fed takes the report to heart, thus the market does as well. Attention will be on job creation, unemployment, and, most importantly, hourly wages: 

• Job creation is expected to be 210k, a decrease from the previous 353k. Lower figures are preferable as such suggest the economy is cool enough to foster disinflation.
• The unemployment rate is forecasted to remain steady at 3.7%. Higher rates are preferable as the increase implies less wage pressure.
• Consensus on hourly wages, month over month, is anticipated to decrease to 0.2% from 0.6%. Lower figures are preferable as the decrease should flow to service-related inflation.

Micro Movers

Target (TGT):  Following Walmart’s strong Q4, investors need TGT to deliver a similar report to sustain its upward momentum. Overall, the quarter will be analyzed for broader insights into consumer behavior, supply chain dynamics, and inflation trends.

Kroger (KR): In the final hour, the FTC and several states filed a lawsuit to halt their merger with Albertsons (ACI). KR and ACI both promptly reiterated their case for the merger, closing by saying they “look forward to litigating this action in court…”. Aside from expanding on the matter, as a major U.S. grocer, this quarter doubles as an update on food inflation trends.

CrowdStrike (CRWD): Zscaler’s (ZS) disappointing quarter sent CRWD down 3% in sympathy. If you are not already invested, I’d wait for the quarter. Your patience may be rewarded with a 10-20% discount.  While I believe that the earnings from FTNT, PANW, and ZS do not threaten the long-term bullish trend in cybersecurity, the significant negative reactions indicate that some may have risen too rapidly. Thus, if you have been long the name, congratulations on what I extrapolate is a healthy profit. If you haven’t already, I would consider taking some profit ahead of the print.   

Broadcom (AVGO): Despite the recent run to ~$1400, AVGO only trades at ~30x FWD. For comparison, NVDA trades at ~33x FWD earnings. Moreover, NVDA’s guidance suggests that AVGO’s 30x multiple may actually be lower. Even after a 30% YTD rise, the setup remains favorable. Unfortunately, AVGO is reporting just before Nonfarm Payrolls. If Payrolls lean hawkish, bearish sentiment could overwhelm any positive or exacerbate any negative from the quarter. Conversely, a dovish Payrolls could overshadow any negative or amplify any positive.

Costco (COST): Wall Street analysts love to try and cast a shadow over the name, often citing margin as a concern. Ignore that noise. Keep the “main thing” the “main thing”. In Costco’s case, that is driving sales and growing membership.  Additionally, as a well-connected wholesaler and significant employer, investors will be listening for their commentary on inflation across the consumer basket as well as labor costs.

Gorilla Tactics: Snowflake (SNOW)

Snowflake (SNOW) offers access to its AI-infrastructure, enabling businesses to sample the technology before committing significant financial and human resources to develop their own. For many companies, this is the only cost-effective means to access cutting-edge technology and leverage the benefits of the AI revolution. 

SNOW is coming off a rough week, falling 20% post-earnings. While weaker-than-expected guidance contributed to this decline, CEO Slootman stepping down overshadowed all else. While it is impossible to calculate, I attribute 50% of the drop to the guide and 50% to the CEO’s departure. However, Slootman will continue to serve as chairman, meaning he’ll still have a voice and presence within the company.

Despite the drop, the stock is still richly valued: 18x FWD sales. Nonetheless, I view SNOW as a unique asset. Unique assets, particularly those with significant growth, typically command premium valuations. SNOW will retain its uniqueness as long as the cost of developing in-house AI infrastructure is prohibitively high. The pricing dynamic will only change once the supply of relevant semiconductors increases. While work is being done to increase supply, I do not anticipate any significant changes to the pricing dynamic for a minimum of 2 years.

I see parallels to Palo Alto, another exceptional company in a secular bull market that has encountered a setback. Similar to my approach to PANW, I have bought a quarter of my position now and will reassess with each significant update: next quarter, special announcements (8-Ks), investor days, etc… 

When building positions in growth stocks, where volatility is common, I prefer a gradual approach. This approach allows for opportunistic purchases as the fundamentals improve or during market corrections. It also allows for a measured exit without incurring significant losses in the event this setback escalates.