We are shaking off quite a bit of news from Friday! Starting with the OPEC meeting in Vienna, then on to the news that Greece will delay its IMF loan repayment, instead opting to bundle its four payments due this month into one lump sum at the end of the month. Next on to a headline May employment report that is stoking the Fed rate hike flames. All of this and the ensuing questions led to an indecisive market in the vein of The Clash's "Should I Stay or Should I Go?"
It's easy to get caught up in situations like this, but as we've shared with subscribers over the years, context and perspective are critical, doubly so at times like these. That means taking a step back and looking at the larger picture rather than just any one single data point. Of course, having would-be economists who really are talking head journalists spout off about how the 280,000 jobs created in May is the new "run rate" does not help the situation. We admit it gets us more than a little steamed, but then we remember the job there is to drive viewership for those advertising dollars, which is not the same as informing.
Granted, the May employment report was better than expected, but let's remember too the wide miss relative to expectations that was the April employment report. The bottom line is the monthly employment report is a volatile figure, and when we look outside to other job indicators, such as ADP's monthly figures or those from Gallup, we get a less-than-clear picture on job creation. But that's only a part of the economy, and other domestic data -- consumer spending, manufacturing, and inflation -- have all been rather subdued. At the same time, more than two dozen countries have looked to jump start their economies over the last few months with interest rate cuts, and the flow through is a stronger U.S. dollar.
If we were seeing a more widespread pick-up in economic data that would be one thing, but we're not. As investors, we need to be careful not to get caught up in the shouts of a noisy minority of people about the most recent data point instead of assembling the pieces for a more comprehensive view. The Fed will continue to look at all the data, both domestic and foreign, and while the May employment report may point them in one direction, the inflation rate will likely be a strong counterbalance.
Reinforcing that point, OPEC has opted not to cut oil production rates and in the coming months Iran is likely to return its oil production to pre-sanction levels. A greater supply of global oil likely means we will see oil prices decline in the coming months and some bears are already calling for $40 per barrel.
We'll see how low it goes, but the odds are high that deflation will once again rear its head in the coming months like we saw in the Producer Price Index (PPI) data this past December, January and February. Just as we have to take a comprehensive view of the economy, we also have to be mindful of the Fed's dual mandate of maximizing employment and stable prices.
The bottom line is while the stock market is reacting to last Friday's jobs report, it's far from a foregone conclusion of when the Fed will raise rates. Even then, the jury is still out on how much it will raise rates and what the timing will be on a follow-up increase.
To us, that means paying attention to the data streams that are on tap in the week ahead. If the timing of the eventual decision is "data dependent," well, that means paying attention to the upcoming data and putting it into perspective.
Shedding greater insight into the true state of the jobs market will be the May Labor Market Conditions Index and the April JOLTS report, both of which hit during the first half of the week. In the second half, it will be the May Retail Sales report that will capture investor attention. Over the last several months. Both retail sales and personal spending data have been weaker than expected, and while we expect at least a modest pick-up we will be watching to see how much of one we actually get.
Rounding out the week is Friday's May PPI report. Candidly, we are not expecting much movement one way or the other given the sideways movement in crude during May, but we will be sifting through the report for other signs of inflationary pressures. As we've discussed previously, eggs and the avian flu are already on our radar screen for companies such as ConAgra (CAG), Post Holdings (POST), Kraft Foods (KRFT) and others.
With only a few weeks until the close of the current quarter -- where does the time go? -- we have a handful of earnings reports to watch this week including:
-- United Natural Foods (UNFI), which should continue to benefit from growing organic and natural food competition as Kroger (KR) and others look to take on Whole Foods Market (WFM), Sprouts Farmers Market (SFM) and similar companies.
-- lululemon athletica (LULU) has been the recipient of bullish commentary from several Wall Street firms lately. Was it justified? Are competitors like Under Armour (UA) and Nike (NKE), which are targeting the same customer base, taking share? Is lululemon making headway in swimwear this season? We'll find out this week.
-- Is Restoration Hardware (RH) bucking the weak retail sales trend over the last few months?
Below is a more detailed look at the economic data in the week ahead. For a fuller list of corporate earnings to be reported over the next five days, click here to view TheStreet's weekly earnings calendar. Enjoy the weekend and be sure to check back for our midweek column, in which we will 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 8 - Friday, June 12|
|8-Jun||Labor Market Conditions Index||May|
|9-Jun||NFIB Small Business Optimism Index||May|
|9-Jun||JOLTS - Job Openings||April|
|10-Jun||MBA Mortgage Index||6-Jun|
|11-Jun||Retail Sales ex-auto||May|
|11-Jun||Export Prices ex-ag.||May|
|11-Jun||Import Prices ex-oil||May|
|11-Jun||Natural Gas Inventories||6-Jun|