Dow Jones, Nasdaq, S&P 500 weekly preview: May jobs data in the limelight

The jumped on Friday, marking its best session of the year, as investors closed a strong month after the Federal Reserve’s preferred inflation measure met expectations.

The blue-chip Dow rose 574.84 points, or 1.51%, to 38,686.32, driven by gains in Salesforce (NYSE:) and UnitedHealth (NYSE:), which advanced 7.5% and 2.8%, respectively. The added 0.80% to 5,277.51, while the edged lower by 0.01% to 16,735.02, impacted by declines in Nvidia (NASDAQ:) and other mega-cap technology stocks.

The S&P 500 and Nasdaq ended five-week win streaks with drops of 0.51% and 1.1%, respectively. The Dow slipped 0.98%, marking its second consecutive week of losses.

Despite the challenging week, May was a positive month for equities, with all major benchmarks recording gains for the sixth time in seven months. The Dow increased by 2.3% in May, while the S&P 500 rose 4.8%. The Nasdaq saw a 6.88% gain marking its best month since November.

Looking ahead to this week, the biggest economic event will be the Friday release of the May jobs data. JPMorgan economists said they expect a small step down from last month, and estimate that nonfarm payrolls increased by 150,000 last month, with the unemployment rate steady at 3.9%.

“If realized, this pace of growth, although solid on its own, will indicate a gradual cooling in the establishment survey,” economists wrote.

“The April JOLTS release should also point to modest further cooling in labor demand,” they added.

Other key macro events this week is also the ISM manufacturing PMI, set to be released on Monday.

Investors await Lululemon, Ciena earnings reports

The bulk of the Q1 earnings season is over, with only a few companies left to report their financial performance for this period.

This week, several earnings reports will be in the limelight, most notably those by Lululemon Athletica (NASDAQ:) and Ciena Corp (NYSE:). Analysts expect Lululemon to report earnings of $2.38 per share, reflecting a 4.4% year-over-year increase, with revenue projected at $2.2 billion, up 10% YoY.

For Ciena’s fiscal Q2 results, which are due after Thursday’s close, industry analysts anticipate earnings of 15 cents per share, a decline of 79.7% year-over-year, on revenue of $894.9 million, down 20.8% YoY.

Other noteworthy earnings reports that will come out in the coming days include Bath & Body Works (NYSE:), CrowdStrike (NASDAQ:), Dollar Tree (NASDAQ:), and Nio (NYSE:), among others.

What analysts are saying about US stocks

Bank of America: “Bad news has been good news for equities over the past two months (-78% correlation between the S&P 500 and USD), but if growth deteriorates too much, bad news can turn into bad news. We believe the goldilocks range for NFP is +125-175K, which would maintain the unemployment rate largely unchanged assuming labor supply growth remains at or above today’s level. Sub-125K gains in NFP could increase the risk of triggering the Sahm Rule*, reviving recession fears in the market. As long as inflation remains in check, stronger growth should also be positive for stocks.”

Goldman Sachs: “Currently the Magnificent 7 account for 13% of hedge fund long portfolio and 19% of the average large-cap core mutual fund portfolio, both shares roughly flat vs. last quarter (Exhibit 2). For reference, the seven stocks composed 25% of the market cap of the Russell 3000 index at the end of 1Q. At the stock level, hedge funds added to AAPL but trimmed positions on net in GOOGL, AMZN, NVDA, MSFT, and META (NASDAQ:) in 1Q. Furthermore, all of these stocks except TSLA remain at the top of our Hedge Fund VIP list. Mutual funds reduced positions in each of the Magnificent 7 in 1Q, led by MSFT, with 25% of funds in our sample cutting their exposure to the stock.”

Jefferies: “US market remains expensive on both PE and PE/G basis. Broadly, the market is pricing a goldilocks environment, expecting Fed to cut rates while the economy continues to thrive, thus supporting the corporate earnings. Amid the stretched valuations, focus on sustainable earnings becomes even more important.”

RBC Capital Markets: “Valuations are already favorable for the broader market ex the top 10 S&P 500 names, so the driver will need to be something else. Our work suggests that the 10-year yield needs to stop rising, the market needs more clarity and certainty around the path of monetary policy and the timing of cuts, earnings trends need improve for the broader market such that they look better than the biggest growth names, and economic excitement needs to return. The trigger for a renewal of the rotation trade may also come from positioning. CFTC data suggests that the large-cap growth trade is no longer frothy. But it also doesn’t look washed out suggesting overbought conditions could return rather quickly to this corner of the market.”