The Week Ahead

Monday	Tuesday	Wednesday	Thursday	Friday
Fed Speakers	Home Depot (HD)	CPI	Take-Two Interactive (TTWO)	–

Macro Movers

It appears as though we have put our first 5% pullback of the year behind us.

The decline came due to concerns that the Fed might consider a rate hike due to inflation remaining stubbornly above their 2% mandate. However, Powell’s comments during the recent FOMC press conference effectively disarmed those concerns.

Powell’s dismissal won’t stop Fed speakers from jawboning or markets from reacting to the Consumer Price Index (CPI). 

Fed President Mester – known for her hawkish and bearish stance – and Fed Vice Chair Jefferson are scheduled to speak 30 minutes before Monday’s open. Remarks from the panel could produce trepidation about the upcoming CPI, potentially dampening stock performance until its release Wednesday morning.

Speaking off, core CPI year-over-year is expected to be 3.6%, down from the previous month’s 3.8% reading. Month-over-month consensus is 0.3%, lower than the previous month’s 0.4%. As long as these numbers come in near or slightly below estimates, I am optimistic the market will surpass the highs achieved in March.

Micro Movers

Home Depot (HD): The market associates housing activity with yields. As yields move lower, housing activity is expected to increase. With the US10Y yield reversing lower after Powell’s remarks, there is renewed interest in housing sector stocks. While I don’t own or plan to invest in HD, I will listen to their earnings call for tea leaves on housing inflation.

Take-Two Interactive (TTWO): Investors are awaiting the green light to buy this stock, which will only come with more definitive information on the GTA franchise. GTA VI has the potential to restart one of the most lucrative revenue streams the gaming/software industry has ever seen. 

I have traded TTWO twice. The first time, I profited nicely. The second time, I was lucky to break even. My experience has taught me that you don’t need to catch the absolute bottom to do well with this stock. The earnings power of a new GTA release is so significant that you can miss the initial upswing and still generate a nice return.

Wait for the next earnings report, listen for positive GTA VI developments, and let’s get confirmation in the form of a more compelling uptrend in the stock before looking for an entry point.

Broader Commentary

In my opinion, stocks are in a really healthy place. We got the textbook pullback (5% decline) out the way, marked by successful retests of major moving averages as potential negative catalysts surrounding tighter Fed Policy failed to materialize. We passed “the test” with flying colors. Consequently, I believe there will need to be a new fear factor to meaningfully derail stocks’ upward momentum. 

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I am uncertain what the fear factor will be, but I am certain it will come. It always does. 

Perhaps, Nvidia drops the ball when they report later in the month? Although I find it an unlikely prospect, it is possible. 

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Until the next fear surfaces, enjoy what I anticipate is the next move higher. Stay long. Otherwise, start identifying areas in your portfolio to lighten up on once stocks get over-extended again.