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The U.S. economy will be in the spotlight next week with the Federal Reserve's policy-making committee meeting on May 2-3 and updates due out on construction spending, factory orders, jobless claims and the headliner at the end of the week with the April jobs report. The employment report is expected to show nonfarm payrolls moderated to +175K job adds in April from +236K in March. That level would imply a six-month moving average job growth of level of around 294K and point to a gradual slowing in hiring activity. All the economic data is expected to lead to another volatile week for the Treasury yields. As for the FOMC meeting, futures trading implies an 84% chance of a 25-point rate increase and 16% for no rate change. While some traders have been betting the rate hikes could end in June, Seeking Alpha analyst Damir Tokic presented the case that increases will be needed at both the June and July meetings due to sticky inflation. The earnings calendar is still heavy with key reports scheduled from Starbucks (SBUX), Apple (AAPL) (preview), AMD (AMD) preview, Ford (F), Check Point Software (CHKP) (preview), Qualcomm (QCOM), and Enbridge (ENB) (preview). Also on the front burner next week, a flurry of sales, deliveries, and earnings reports in the auto sector could add to share price volatility.
Volatility watch: Short interest on electric vehicle stocks EVgo (EVGO), Faraday Future Intelligent (FFIE), and Blink Charging (BLNK) is elevated ahead of more earnings reports and production updates from the sector. Options trading volume is sky-high on First Republic Bank (FRC).
IPO watch: Johnson & Johnson (NYSE:JNJ) will spin off its consumer health unit in a new IPO expected to start trading on May 5. J&J aims to sell 151.2M shares of Kenvue at an expected pricing range of between $20 to $23. Some of Kenvue's well-known brands include Band-Aid, Neutrogena, Aveeno, Listerine, and Tylenol. Haleon (HLN) and Reckitt Benckiser (OTCPK:RBGPF) are considered the closest publicly traded comparables to Kenvue. Read a detailed preview of the IPO.
Dividend watch: Companies forecast to boost their quarterly payouts include Marriott International (MAR) to $0.45 from $0.40, Chesapeake Utilities (CPK) to $0.59 from $0.535, Watts Water (WTS) to $0.33 from $0.30, and PepsiCo (PEP) to $1.24 from $1.15. See Seeking Alpha's list of Quick Dividend Stock Picks.
FOMC preview: The Federal Open Market Committee is expected to raise interest rates by 25 basis points at the May 2-3 meeting next week. The biggest focus from economists may be on the statement and if the language referring to "some additional policy firming" and the "extent of future increases in the target range" is changed. Bank of America thinks it is likely the Fed will signal an extended hold for rates and push back against the market pricing expectation for rate cuts late in 2023 and 2024. Of note, there are two employment and CPI reports between the May and June meetings, meaning the Fed may not want to completely rule out a June hike in case the data surprises strongly to the upside. In his FOMC preview, Seeking Alpha analyst David Kotek said the overall view the central bankers may take is that the economy is slowing and prices continue to moderate. He also thinks there is little sign that the banking problems in March caused the significant negative response across the broader economy that some had feared.
Auto sector: The automobile sector has a big week on tap with sales, deliveries, and earnings reports all due in. Chinese electric vehicle makers NIO (NIO), Li Auto (LI), and XPeng (XPEV) will post monthly deliveries reports on May 1 to expectations for strong year-over-year growth. Some automakers in the U.S. and globally will also issue sales reports covering April. TrueCar forecasts the biggest U.S. market share winners during the month were BMW (OTCPK:BMWYY) +24.2% to 116K units, Tesla (TSLA) +15% to 55.2K units, and General Motors (GM) +13.0% to 227K units. Meanwhile, S&P Global Mobility estimated overall new light vehicle sales volume in the U.S. rose 4% in April to 1.29M. That volume would translate to an estimated sales pace of 15.2M, which is roughly equivalent to units SAAR for the first three months of the year. "Auto sales remain stuck at current levels," said Chris Hopson, principal analyst at S&P Global Mobility. "With an auto sales environment currently defined by the mixed signals of mildly advancing production, inventory and incentives on one hand, and rising affordability concerns and uncertain consumer confidence levels on the other, expected demand in April falls under the no news is good news category," he added. S&P Global Mobility analysts do not expect sales volumes over the next several months to dynamically change from the current trend. Looking further down the road, Bank of America pointed to the recent commentary from General Motors (GM) (read the earnings call transcript) as an indication that demand remains solid, with little to no mix degradation. However, the firm thinks the auto market may become more challenging in the second half of the year with some risk to sales from recent banking sector volatility, which could lead to higher rates for loans and leases. BofA has a full-year forecast for only a modest uptick in U.S. auto sales to a SAAR of 14.3M versus 13.7M in 2022. Earnings reporters of note next week from the automobile sector include Ford Motor (F) and Volkswagen (OTCPK:VLKAF), which will both feature updates on their electric vehicle programs. The two biggest gainers in the auto sector over the last week were Fisker (FSR) and Lucid Group, while Tesla (TSLA) and Ferrari (RACE) are the year-to-date leaders.
Apple earnings preview: Apple (AAPL) is expected to post revenue of $92.8B and EPS of $1.43 with its Q1 earnings report. Many analysts expect a largely in-line report from the Cupertino tech giant with recent supply chain checks on iPhone and iPad builds stable even as concerns over the macroeconomic climate increase. Morgan Stanley predicts Q2 revenue guidance could be below expectations, while the gross margin forecast surprises to the upside. There was also a reminder from the firm that history shows that a March quarter beat and June quarter guide down doesn't necessarily drive a negative post-earning stock reaction as investors typically look to product launches. Seeking Alpha analyst Luca Socci thinks investors should focus on the financial service ecosystem that Apple is building out, which could be highlighted on the earnings call. Options trading on Apple implies a 4.1% share price swing after the earnings report is posted. AAPL rallied 2.1% after its last earnings report.
Corporate events: Allegion plc (NYSE:ALLE) will hold an Investor & Analyst Day event in Carmel, Indiana on May 2. Top execs will discuss the company's long-term strategy and vision for the future. Canadian National Railway (NYSE:CNI) will hold an Investor Day event in Chicago on May 3. Analysts have the event circled as a potential share price catalyst with medium-term guidance anticipated. Cloudflare (NYSE:NET) will host an Investor Day on May 4 in conjunction with the company's user conference Cloudflare Connect in New York City. Check out Seeking Alpha's Catalyst Watch for more events scheduled for next week.
Quant ratings: Stocks with recent quant rating changes include Life Time Group Holdings (LTH) to Strong Buy from Hold, Freshpet (FRPT) to Buy from Hold and Novavax (NVAX) to Strong Sell from Hold. See the stocks with the very highest rated Seeking Alpha Quant Ratings.
Barron's mentions: The publication makes a rousing recommendation on Berkshire Hathaway (NYSE:BRK.A) (BRK.B) ahead of the company's annual meeting in Omaha, Nebraska on May 6. The argument is made that Warren Buffett's conglomerate has never been in better shape. After-tax operating earnings from a widely diversified group of businesses are expected to rise more than 10% this year to $35B despite economic headwinds. Even after making some notable acquisitions over the last few years, Berkshire is sitting on more than $125B of cash that could be deployed in an "elephant size" acquisition. Until then, Berkshire has the cash in short-term Treasury bills racking up close to 5%. Based on Berkshire's "look through" way of looking at earnings, a calculation that reflects the proportional profits of the companies in the company's investment portfolio, the stock is valued at about 14X projected 2023 earnings. The more actively traded Berkshire Class B shares are called a slightly better bet than the Class A shares. Berkshire Hathaway does not pay a dividend, but Barron's offered up a list this week of five companies expected to hike payouts by double digits. Goldman Sachs Group (GS), Kroger (KR), Sherwin-Williams (SHW), Target (TGT), and UnitedHealth Group (UNH) are the names that made the dividend hike watch list.
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