Top 5 things to watch in markets in the week ahead
U.S. inflation data will be front and center this week and could be the deciding factor in the near-term direction for markets. Meanwhile, retail sales data along with earnings results from some big-name retailers will give fresh insights into the strength of consumer spending, a key driver of the economy. The UK and China are to release what will be closely watched economic data. Here’s what you need to know to start your week.
Inflation numbers
Investors will be looking at the U.S. producer price index and consumer price index data this week for any indication that price pressures are finally easing after months of strong inflation gave rise to fears that the Federal Reserve may not cut interest rates this year.
Markets got some relief earlier this month when Fed Chair Jerome Powell indicated that the central bank was still looking to eventually cut rates and the latest U.S. employment report showed signs of cooling in the labor market.
Analysts expect Wednesdays crucial CPI report to show underlying inflation rising 3.6% on a year-over-year basis, which would be the smallest increase in over three years.
But a hotter-than-expected inflation reading would likely price out rates cuts for the rest of the year, reigniting market volatility.
Retail earnings
Investors will get some fresh insights into the health of the U.S. consumer this week with April retail sales data on Wednesday, plus earnings results from major retailers Walmart (NYSE:WMT) and Home Depot (NYSE:HD).
So far, bullish investors have gained confidence from a solid earnings season. Standouts included generally strong reports from most of the so-called Magnificent Seven tech and growth giants whose shares helped propel the market higher last year and continue to have a huge weighting in the S&P 500.
Strong earnings have “got investors feeling more comfortable about being in this market," Art Hogan, chief market strategist at B Riley Wealth told Reuters. However, “the trajectory of inflation is always going to be important to us while we're in a cycle where we expect the next thing for the Fed to do is to cut rates."
China data
China is to publish a string of economic data on Friday that will show how the world’s number two economy was performing at the start of the second quarter.
April home price data will give fresh insights into the state of the property sector which has been engulfed by a debt crisis for about three years now, leaving property developers on the brink of collapse.
Industrial production, retail sales and fixed asset investment are seen accelerating year on year.
Comments from policymakers at last month’s Politburo meeting have primed investors for a wave of stimulus measures from Beijing to boost economic recovery, keeping the market mood buoyant for now.
UK data
Last week the Bank of England moved closer to cutting interest rates, but markets are divided on whether a first cut will come at the bank’s next meeting in June or whether policymakers will hold out for longer.
Two official sets of employment data and two rounds of inflation figures are due before the BoE’s next meeting on June 20.
The first of the two jobs reports on Tuesday will be closely watched for signs that pay increases are fueling price pressures. Annual pay growth is still running hot, while labor supply is stagnating.
Economists are expecting average weekly earnings, excluding bonuses, to have risen by an annual 5.9% in the first quarter. While still solid, signs that wage growth is moderating would likely bolster expectations for a June cut.
Oil prices
Oil prices ended last week little changed with Brent logging a 0.2% loss, while crude futures recorded a rise of 0.2%.
Expectations that U.S. interest rates could remain higher for longer have weighed on oil prices as higher interest rates typically slow economic activity and weaken oil demand.
The stronger U.S. dollar has also weighed, making greenback-denominated commodities more expensive for buyers using other currencies.
Oil prices have also been pressured by rising U.S. fuel inventories coming into the typically robust summer driving season.
Prices found some support after data on Thursday showing China imported more oil in April than the same month last year. China's exports and imports returned to growth in April after contracting the previous month.
Energy traders will be looking at this week’s inflation data which will dictate the future direction of interest rates.
Other News
Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Dupont, Datadog and NetApp.
U.S. markets closed for Memorial Day.
Dupont
What happened? On Tuesday, Citi upgraded Dupont (NYSE:DD) to Buy with $95 price target
What’s the full story? DD shares exhibited a robust reaction in the 1.5 days following the announcement, rising approximately 3%. The feedback from investors was positive - the prospect of operating as standalone businesses should generate value through targeted growth and portfolio clarity. Additionally, Citi sees potential from an electronics recovery and the easing of destocking in more challenged markets.
The most significant source of resistance lies in valuation, particularly concerning Electronics and then New DuPont (RemainCo). Upon revisiting the Sum of the Parts in the new construct, The analysts’ views are more reflective of solid earnings from electronics over the next 18 months.
Citi sees the potential for more detail on the separation as potential positive catalysts throughout the year.
Buy at Citi means “Buy (1) ETR of 15% or more or 25% or more for High risk stocks.”
How did the stock react? Dupont opened the regular session at $82.44 and closed at
$82.08, a
gain of 1.18% from the prior day's regular close.
Mind Medicine
What happened? On Wednesday, well Tuesday after hours, Baird initiated coverage on Mind Medicine Inc (NASDAQ:MNMD) at Outperform with a $27 price target.
What’s the full story? Baird’s optimistic stance is primarily driven by the promising prospects of the company’s lead drug, MM120, a novel form of LSD designed to treat generalized anxiety disorder (GAD). In a pivotal phase 2b clinical trial, MM120 demonstrated a statistically significant improvement in GAD symptoms compared to a placebo. The results are particularly noteworthy as the observed therapeutic effect of MM120 was not only rapid in onset but also sustained over the entire 12-week duration of the study.
The brokerage house’s confidence is further bolstered by the recent decision of the FDA to award Breakthrough Therapy Designation to MM120. This designation is reserved for drugs that show substantial improvement over existing therapies for serious or life-threatening diseases. The fact that MM120’s impact was greater than that of currently approved treatments after just a single dose highlights its potential to be a game-changer in the GAD treatment landscape.
Considering the current market dynamics and the unmet medical needs within the GAD space, Baird views the market opportunity for MM120 as having blockbuster potential. The brokerage house’s analysis suggests that the drug could significantly disrupt the existing market, offering a new and potentially superior treatment option for patients suffering from GAD. This could translate into substantial financial success for the company, justifying the high expectations reflected in the $27 price target
Outperform at Baird means “Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months.”
How did the stock react? Mind Medicine surged 6% after hours on Tuesday as the headlines
circulate. As of the regular session open Wednesday, Mind Medicine opened at $8.90 and
closed at $8.91, a gain of 6.64% from the prior day's regular close.
Datadog Inc
What happened? On Thursday, BofA upgraded Datadog (NASDAQ:DDOG) to Buy with a $155 price target.
What’s the full story? Datadog, a service that aids organizations in monitoring application and infrastructure performance to ensure high-quality end-user experiences, is seen by the bank as a significant opportunity, estimated to be worth $53bn. The robust platform of Datadog, which boasts 22 products, is particularly appealing to spend consolidators and those seeking cutting-edge technology.
Furthermore, BofA anticipates that Datadog will consistently deliver a Rule-of-40+ profile, which means 20%+ revenue growth plus 20%+ free cash flow margin. This expectation places Datadog well above the 30% average for the infrastructure peer group, demonstrating the bank’s confidence in Datadog’s potential for sustained growth and profitability.
Buy at BofA means “Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster.”
How did the stock react? Datadog opened the regular session at $123.38 and closed at
$117.45,
a decline of 3.48% from the prior day's regular close.
NetApp
What happened? On Friday, JPMorgan upgraded NetApp (NASDAQ:NTAP) to Neutral with a $125 price target.
What’s the full story? JPMorgan’s updated perspective is driven by the company’s demonstrated capability to maintain its gross margins in the face of escalating NAND prices. This development stands in contrast to JPMorgan’s initial forecast, which anticipated a decline in margins due to the cost pressures.
In addition to the positive outlook on gross margins, JPMorgan continues to recognize NTAP’s distinct position in the market, particularly in terms of its Cloud services and its leadership in All-Flash Arrays (AFA) for on-premises solutions. However, this is tempered by a perceived lackluster macroeconomic performance when compared to its peers, who are currently experiencing a more immediate surge in demand driven by Artificial Intelligence (AI) advancements.
Neutral at JPMorgan means “over the duration of the price target indicated in this report, we expect this stock will perform in line with the average total return of the stocks in the Research Analyst’s, or the Research Analyst’s team’s, coverage universe.”
How did the stock react? NetApp opened the regular session at $119.75 and closed at $120.43, a gain of 3.73% from the prior day's regular close.
OPEC+ agreed on Sunday to extend most of its deep oil output cuts well into 2025 as the group seeks to shore up the market amid tepid demand growth, high interest rates and rising rival U.S. production.
Brent crude oil prices have been trading near $80 per barrel in recent days, below what many OPEC+ members need to balance their budgets. Worries over slow demand growth in top oil importer China have weighed on prices alongside rising oil stocks in developed economies.
The Organization of the Petroleum Exporting Countries and allies led by Russia, together known as OPEC+, have made a series of deep output cuts since late 2022.
OPEC+ members are currently cutting output by a total of 5.86 million barrels per day (bpd), or about 5.7% of global demand.
Those include 3.66 million bpd of cuts, which were due to expire at the end of 2024, and voluntary cuts by eight members of 2.2 million bpd, expiring at the end of June 2024.
On Sunday, OPEC+ agreed to extend the cuts of 3.66 million bpd by a year until the end of 2025 and prolong the cuts of 2.2 million bpd by three months until the end of September 2024.
OPEC+ will gradually phase out the cuts of 2.2 million bpd over the course of a year from October 2024 to September 2025.
"We are waiting for interest rates to come down and a better trajectory when it comes to economic growth ... not pockets of growth here and there," Saudi Energy Minister Prince Abdulaziz bin Salman told reporters.
OPEC expects demand for OPEC+ crude to average 43.65 million bpd in the second half of 2024, implying a stocks drawdown of 2.63 million bpd if the group maintains output at April's rate of 41.02 million bpd.
The drawdown will be less when OPEC+ starts phasing out the 2.2 million bpd voluntary cuts in October.
The International Energy Agency, which represents top global consumers, estimates that demand for OPEC+ oil plus stocks will average much lower levels of 41.9 million bpd in 2024.
"The deal should allay market fears of OPEC+ adding back barrels at a time when demand concerns are still rife," said Amrita Sen, co-founder of Energy Aspects think tank.
Prince Abdulaziz said OPEC+ could pause the unwinding of cuts or reverse them if demand wasn't strong enough.
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Analysts had expected OPEC+ to prolong voluntary cuts by a few months due to falling oil prices and sluggish demand.
But many analysts had also predicted the group would struggle to set targets for 2025 as it had yet to agree individual capacity targets for each member, an issue that had previously created tensions.
The United Arab Emirates, for instance, has been pushing for a higher production quota, arguing its capacity figure had been long under-estimated.
But in a surprise development on Sunday, OPEC+ postponed the discussions on capacities until November 2025 from this year.
Instead, the group agreed a new output target for the UAE which will be allowed to gradually raise production by 0.3 million bpd, up from the current level of 2.9 million.
OPEC+ agreed that it would use independently assessed capacity figures as guidance for 2026 production instead of 2025 - postponing a potentially difficult discussion by one year.
Prince Abdulaziz said one of the reasons for the delay was difficulties for independent consultants to assess Russian data amid Western sanctions on Moscow for its war on Ukraine.
The meetings on Sunday lasted less than four hours - relatively short for such a complex deal.
OPEC+ sources said Prince Abdulaziz, the most influential minister in the OPEC group, had spent days preparing the deal behind the scenes.
He invited some key ministers - mostly those who contributed to the voluntary cuts - to come to the Saudi capital Riyadh on Sunday despite meetings being largely scheduled online.
The countries which have made voluntary cuts to output are Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia and the United Arab Emirates.
"It should be seen as a huge victory of solidarity for the group and Prince Abdulaziz," said Sen, adding the deal would ease fears of Saudi Arabia adding barrels back due to Aramco (TADAWUL:2222)'s share listing.
Saudi Arabia's government has filed papers to sell a new stake in state oil giant Aramco that could raise as much as $13.1 billion, a landmark deal to help fund Crown Prince Mohammed bin Salman's plan to diversify the economy.
OPEC+ will hold its next meeting on Dec. 1, 2024.
Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.
1. AI-enabled upgrade is coming:’ Apple reiterated as Top Pick at BofA
Bank of America reiterated Apple (NASDAQ:AAPL) stock as their Top Pick, maintaining a price target of $230.
In particular, Wall Street giant analysts are bullish about Apple's transition from smartphones to "IntelliPhones," predicting a significant multi-year upgrade cycle.
"We view the upcoming AI-enabled phones (IntelliPhones) to drive a multi-year upgrade cycle similar to the step function improvement driven by the introduction of smartphones," the note stated.
BofA’s team believes that with a vast installed base of over four billion smartphones, the adoption of AI-enabled IntelliPhones will surpass the rapid uptake seen with smartphones and 5G.
IntelliPhones are expected to leverage advanced AI and machine learning for features such as superior personal assistance, language processing, health monitoring, enhanced photography, and AR/VR experiences, among other things.
2. Needham downgrades UiPath stock
Needham analysts on Thursday downgraded UiPath (NYSE:PATH) stock from Buy to Hold citing a mix of factors, including macroeconomic headwinds and a changing go-to-market (GTM) strategy.
"We downgrade PATH shares to Hold due to a combination of macro pressure, uncertainty around near-term execution due to a CEO change and a changing GTM strategy, and Y/Y margin compression creating an unfavorable near-term financial profile,” analysts wrote.
The investment firm noted that the company's Q1F25 sales metrics were mildly disappointing, with large deals facing incremental scrutiny.
The recent CEO change back to founder Daniel Dines, following Rob Enslin's departure, and multiple GTM changes are expected to cause near-term sales disruptions.
Net new annual recurring revenue (ARR) and revenue guidance were both lowered, which Needham believes is “conservative enough, but we think it will take multiple quarters for the GTM changes to start driving meaningful upside to guidance.”
3. Northland ups C3.ai to Buy amid accelerating subscription growth
Enterprise AI firm C3.ai (NYSE:AI) saw its shares upgraded by Northland analysts during the week from Market Perform to Outperform, with a target price of $35.
Analysts highlighted the company’s rising subscription growth in Q4 2024 as a key factor behind the upward revision.
"C3.ai posted accelerating subscription growth to 41% in 4Q24, providing evidence that the headwinds from a migration to a usage-based revenue model are abating," analysts commented.
Looking forward, strong pilot expansion and demand for generative AI (genAI) signal continued high growth, they added.
4. Mizuho hikes price targets on chip stocks as AI moves to the edge
Japanese investment banking and securities firm Mizuho lifted its price targets on several chipmakers this week, including Micron Technology (NASDAQ:MU), Qualcomm (NASDAQ:QCOM), Seagate Technology PLC (NASDAQ:STX), and Western Digital (NASDAQ:WDC).
The move comes as Mizuho analysts believe the next catalyst for AI will be at the edge, as original equipment manufacturers (OEMs) push AI on-device capabilities for handsets and PCs.
The firm reiterated Buy ratings, raising price targets to $240 for Micron, $155 for Qualcomm, $90 for Seagate, and $110 for Western Digital.
Analysts highlighted Qualcomm's ramp-up with AI PCs using Snapdragon X Elite and Plus, and the expected increase in AI smartphone shipments.
Moreover, AI PCs, requiring 40% to 80% more DRAM, and handsets needing 50% to 100% more DRAM, present tailwinds for Micron. Western Digital and Micron are also expected to benefit from higher NAND content in AI devices with improved pricing.
Meanwhile, Seagate stands out with higher storage content on PCs and increasing cloud capital expenditure. Mizuho forecasts 1 billion AI smartphones shipped from 2024 to 2027, with AI PCs comprising up to 60% of the PC market by 2027.
5. Dell is a 'legit GenAI participant,' says Loop Capital
In a new note to clients, analysts at Loop Capital reiterated a Buy rating on Dell Technologies (NYSE:DELL) shares and lifted their price target from $125 to $185, emphasizing the IT company is “progressing as a legit GenAI participant.”
"Dell continues to show legitimate GenAI progression the last 90 days which seemingly could progress through CY2025," Loop analysts stated.
The investment bank pointed out Dell's well-positioned stance for long-term commercial IT budget share, noting the company's expanding capabilities across infrastructure products, services, and financing.
Dell identified a $2 to $3 attach revenue opportunity in services, networking, and storage for every $1 of GenAI server revenue.
“On storage specifically, there has been a suggestion in our work that for commercial (non-Hyperscale) Gen AI storage that after VAST Data & WEKA, DELL storage could be as well positioned as PSTG & NTAP, if not better positioned,” analysts wrote.