For many folks, the stock market have been exhibiting almost too much complacency over the last few weeks as the major indices have ground their way higher. I even commented that the S&P 500 had ventured into overbought territory, while others talked about the low levels of the CBOE Volatility Index (VIX).
All of that changed at the end of last week. Tensions escalated in the Middle East, and we witnessed unexpected political upheaval here in the U.S. as Tea Party candidate David Brat beat House Majority Leader Eric Cantor (R-VA) in the primaries. The latter development, which was rather unexpected, has potentially laid the groundwork for more political fireworks in Washington come 2015.
Those events came along with another disappointing set of retail sales -- this time for May -- and below-the-headline inflation data in the May producer price index. All of this led to the first downward move in the S&P 500 for several weeks. Three notable items last week were continuing signs of a mixed U.S. economy, a continuation of mergers-and-acquisitions activity and climbing oil stocks -- mirroring rising crude prices -- associated with the renewed conflict in Iraq.
On the M&A front, we learned that Tyson Foods (TSN) won the bid for Hillshire Farms (HSH), and we also saw Priceline (PCLN) announce a deal for OpenTable (OPEN). Over the weekend, meanwhile, The Wall Street Journal reported that medical-device maker Medtronic (MDT) is in advanced talks to combine with rival Covidien (COV), according to the paper's sources. Considering the ample cash on company balance sheets and growing concern over corporate profit levels and earnings growth, I suspect the current wave of M&A will continue well into the summer.
Looking at the week ahead, early on we'll be getting May readings on industrial production and housing. In recent weeks, we've received favorable numbers on the manufacturing economy -- production, orders and backlogs were shown to have improved. So I wouldn't be surprised if industrial production registered a similar move in May. That said, a favorable data point would bode well for shares of companies that track industrial production -- such as Parker Hannifin (PH), Paccar (PCAR) and Eaton (ETN).
As for housing, already there have been a few stories about falling buyer traffic in May in this area. Given the sharp move higher in home prices over the last year, which reflects the low levels of available inventory, I'm not surprised by the drop in traffic. That said, this underscores what I have been saying -- that homebuilders need to bring more affordable housing stock to market.
For that reason, I remain bullish on Toll Brothers (TOL) in particular and upbeat on the homebuilders and building-product companies that comprise SPDR S&P Homebuilders (XHB). Remember that single-family building permits have been steadily increasing from month to month since December, according to Census Bureau data.
Away from that, midweek is set to bring the latest interest-rate decision from the Federal Open Market Committee -- and, like many, I continue to believe the Federal Reserve will remain on course when it comes to tapering of quantitative easing. Adding weight to this was St. Louis Fed President James Bullard, who recently commented that inflation is now "moving higher."
On the earnings front, there will be several reports to watch this week, including from Adobe Systems (ADBE), FedEx (FDX) and Kroger (KR) as well as Smith & Wesson (SWHC) and Oracle (ORCL). Of the five, Smith & Wesson is the one to watch, given continued year-on-year climbs in firearm background-check data from the Federal Bureau of Investigation, and also considering the relatively scarce holidays and shutdowns during the company's April quarter.
Following is a more detailed look at what you can expect in the week ahead. 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.
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Economic Calendar
Monday, June 16
- Empire State Manufacturing Report (June)
- Net Long-Term Treasury International Capital (TIC) Flows (April)
- Industrial Production (May)
- Capacity Utilization (May)
- National Association of Home Builders (NAHB) Housing Market Index (June)
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Tuesday, June 17
- Housing Starts (May)
- Building Permits (May)
- Consumer Price Index (CPI) (May)
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Wednesday, June 18
- Mortgage Bankers Association (MBA) Mortgage Index (Weekly)
- Crude Inventories (Weekly)
- Federal Open Market Committee (FOMC) Interest Rate Decision (June)
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Thursday, June 19
- Initial and Continuing Jobless Claims (Weekly)
- Philadelphia Fed Index (June)
- Leading Indicators (May)
- Natural Gas Inventories (Weekly)
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Friday, June 20
- NM
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Earnings Calendar
Monday, June 16
- Korn/Ferry International (KFY)
- Motorcar Parts (MPAA)
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Tuesday, June 17
- Adobe Systems (ADBE)
- FactSet Research (FDS)
- John A. Wiley & Sons (JW.A)
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Wednesday, June 18
- Actuant Corp. (ATU)
- Bob Evans Farms (BOBE)
- FedEx Corp. (FDX)
- Jabil Circuit (JBL)
- La-Z-Boy Inc. (LZB)
- Red Hat Inc. (RHT)
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Thursday, June 19
- Blackberry Ltd. (BBRY)
- Kroger Co. (KR)
- Oracle Corp. (ORCL)
- Rite Aid Corp. (RAD)
- Smith & Wesson (SWHC)
- Tibco Software (TIBX)
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Friday, June 20
- Darden Restaurants (DRI)
- Carmax Group (KMX)
