The Week Ahead: Eye-Opening Data Could Lie Ahead

 | Jun 22, 2014 | 8:00 PM EDT  | Comments
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As we get ready to close out the June quarter -- there are all of six trading days left -- several red flags have been thrown on the Wall Street playing field. For instance, food and energy inflation came into focus last week as the Federal Reserve more than trimmed its gross domestic product forecast for 2014.

Meanwhile, mergers and acquisitions continued. For instance, Sprint (T) and T-Mobile (TMUS) continued to move closer to a deal, and sensor company Measurement Specialties (MEAS) -- which I have  recommended to Real Money Pro subscribers -- is being acquired by TE Connectivity (TEL). In addition, Oracle (ORCL) agreed to buy LiveLook, which develops real-time, visual collaboration technology for co-browsing and screen sharing. Finally, SanDisk (SNDK) has inked a deal to buy Fusion-io (FIO) for about $1.3 billion.

So the M&A trend continues, and this isn't surprising, given company needs for growth, mixed with an impetus to fill strategic gaps during a time when corporate balance sheets are flush with cash. Soon after Oracle announced its LiveLook deal, the company reported disappointing quarterly results, particularly for its licensing business.

Oracle was not the only company to rile the markets last week. Smith & Wesson (SWHC) handily beat quarterly expectations, but its outlook led to a near-9% drop in the shares on Friday. Given the pullback, and in view of my pre-earnings comments, I'll have to revisit this stock once it cools off.

Shifting from the rear-view mirror to the front windshield for this coming week, we have more housing data on tap, as well as several flash purchasing managers indices from Markit Economics and HSBC. Also on the docket are personal income and spending data for May.

Of all the housing numbers on tap (see the Economic Calendar below), I believe the most telling report will be that for May new home sales, due out Tuesday. That's not because of the headline number but, rather, due to the inventory levels that the report also provides.

In particular, I'm looking for confirmation of the supply imbalance -- my argument that there are too few homes at too-high prices. If we get that, it will mean that select homebuilders, such as Toll Brothers (TOL) and Lennar (LEN), are ones to own. Lennar is due to report its earnings later in the week along with KB Home (KBH), and for both reports, new orders and pricing will be key metrics to watch.

On the PMI front, the key reports will be out of China, the eurozone and the U.S., but each for different reasons. For China, we should focus on the question of whether the PMI points to a firming or return to growth for that country. For the eurozone, we'll be gauging whether its last PMI reading was a blip, or whether the June number confirms a slower rate of expansion.

As for the U.S., we've seen much domestic support the manufacturing rebound, but input prices have also started to march higher. So: Has this trend continued into June? I suspect it has, and I believe it's only as a matter of time before this is reflected in the monthly producer price index.

With inflation in mind, and in light of last week's hotter-than-expected May consumer price index -- which was eye-opening to some -- last month's personal income and spending data should also raise some eyebrows.

My suspicion is that we will see the savings rate under pressure as cash-strapped consumers grapple once again with higher food and energy prices. Commentary from Sonic (SONC), McCormick (MKC), ConAgra (CAG) and General Mills (GIS) should all help triangulate on the direction of food price increase -- which we already know -- and, importantly, the velocity of that rise. For my money, and that in the Thematic Growth Portfolio, I see the pullback in ConAgra as an opportunity, given the income-to-food-price landscape. I'll have more on that this week.

Other notable earnings reports to watch this week include Barnes & Noble (BKS): Is all hope lost despite the recent Nook deal with Samsung? Separately, is Carnival (CCL) seeing a slump in bookings, given the likely shift in consumer-spending patterns? Also, what does Nike's (NKE) results mean for Finish Line (FINL)? All those answers will be had in the week ahead.

Following is a more detailed look at what you can expect over the next several trading days. Be sure to check back midweek for the Corner of Wall & Main, in which Lenore Hawkins and I dish on the first half of the trading week and other key matters and thoughts -- as well as how to play it all.

_________________

Economic Calendar

Monday, June 23

  • Existing-Home Sales (May)
  • HSBC Flash China Manufacturing Purchasing Managers Index (PMI)
  • Markit Flash France Composite PMI          
  • Markit Flash Germany Composite PMI     
  • Markit Flash Eurozone Composite PMI     
  • Markit Flash U.S. Manufacturing PMI

____

Tuesday, June 24

  • Markit Flash U.S. Services PMI
  • Case-Shiller 20-City Index (April)
  • Federal Housing Finance Agency (FHFA) Housing Price Index (April)
  • New Home Sales (May)
  • Consumer Confidence (June)

____

Wednesday, June 25

  • Mortgage Bankers Association (MBA) Mortgage index (Weekly)
  • Durable Orders (May)
  • Gross Domestic Product (GDP) -- Third Estimate (First Quarter of 2014)
  • Crude Oil Inventories (Weekly)

____

Thursday, June 26

  • Initial and Continuing Jobless Claims (Weekly)
  • Personal Income and Spending (May)
  • Personal Consumption Expenditures (PCE) (May)
  • Natural Gas Inventories

____

Friday, June 27

  • Michigan Sentiment Index -- Final (June)

_________________

Earnings Calendar

Monday, June 23

  • Micron Technology (MU)
  • Sonic Corp. (SONC)

____

Tuesday, June 24

  • Carnival Corp. (CCL)
  • Walgreen Co. (WAG)

____

Wednesday, June 25

  • Apogee Enterprises (APOG)
  • Barnes & Noble (BKS)
  • Bed Bath & Beyond (BBBY)
  • General Mills (GIS)
  • Monsanto Co. (MON)

____

Thursday, June 26

  • Accenture PLC (CAN)
  • ConAgra Foods (CAG)
  • Casella Waste (CWST)
  • Lennar Corp. (LEN)
  • McCormick & Co. (MKC)
  • Herman Miller (MLHR)
  • Nike Inc. (NKE)
  • Winnebago (WGO)

____

Friday, June 27

  • Finish Line (FINL)
  • KB Home (KBH)

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