Good morning - and welcome back from the three-day weekend. I hope everyone is feeling refreshed, because this week is likely to be eventful. Markets held up remarkably well given Fed Chair Jerome Powell’s "hawkish pause" last week, but central banks all continue to reiterate their determination to keep hiking rates until they can be sure inflation is not just cooling, but has sustainably returned to acceptable levels. In the Fed's case, this would be 2%. There's a long way to go...
This Wednesday, Powell is set to speak. He has every reason to appear hawkish, given the pause in rate hikes, and that could slow this rally considerably. "FOMO" investing in artificial intelligence (AI) and mega-cap stocks can only hold up the market for so long if other stocks don’t show signs of life.
Here’s what I’m watching this week...
The Housing Sector Could See More Upside
U.S. homebuilder sentiment advanced in June to an 11-month high; a limited supply of existing homes is continuing to push interest in new construction higher.
The National Association of Home Builders gauge rose five points to 55 - the sixth consecutive month of increases. If we hear Jerome Powell come in with a less hawkish speech than expected - if he gives us signs we're near the end of a tightening cycle - it would be very bullish for future market conditions, in terms of mortgage rates and the cost of financing for builder and developer loans.
Yesterday’s report also showed that builders are becoming less likely to reduce pricing to bolster sales, a good sign that demand is recovering. Buyer incentives also dropped as well. Homebuilders have been strong this year and Chris Johnson has been following the story. You can check out how he's playing the sector right here.
Important Earnings We're Watching This Week
Earnings season is mostly over, but there are still several big names reporting this week. First up, I’m watching FedEx Corp. (FDX) on Tuesday.
There's an interesting phenomenon going on with FedEx's "bread and butter"...
According to an index put together by Bank of America and Bloomberg, carboard box demand is at its weakest since the crisis of 2008. That could well translate to poor earnings from Fedex who, after all, knows a thing or two about cardboard boxes.
Next up is KB Home (KBH). KBH shares are up 56% this year and there's no signs of slowing. If homebuilder sentiment continues to move up, this could still be a buy into earnings.
Last up is Darden Restaurants Inc. (DRI), the owner of Olive Garden, LongHorn Steakhouse, and most recently Ruth’s Chris Steak House. Sales have been strong and over the last several quarters and Darden has shown investors they can expand margins over and above their peers. Alternative data provided by Bloomberg is coming in slightly ahead of sell-side consensus, and if that holds, we could see the stock continue to move higher.
Today's Best Take
Ford Motor Co. (F) and General Motors Corp. (GM) have announced limited partnerships with Tesla Inc. (TSLA) in regards to charging technology. This gets at what could be one of the biggest investing themes of the next decade: metals. Electrification and green transition cannot happen without 10X'ing the supply of certain metals. Garrett Baldwin's Postcards reveals some pretty shocking numbers we'll need to hit - and, importantly, which metals stocks to buy. Here's how Garrett is investing in metals right now and for the foreseeable future.