- U.S. jobs report, ISM PMI surveys, Fed FOMC minutes in focus.
- JPMorgan Chase shares are a buy after dividend hike announcement.
- Levi’s stock is set to struggle amid collapsing profit and dire outlook.
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Stocks on Wall Street rallied on Friday to wrap up an action-packed week, month, and quarter as signs of cooling inflation boosted hopes the Federal Reserve is approaching the end of its rate-hiking cycle.
For the week, the blue-chip Dow Jones Industrial Average rose 2%, the benchmark S&P 500 climbed 2.3%, while the tech-heavy Nasdaq Composite advanced 2.2%.
U.S. stocks also posted strong gains for the month of June. The Dow tacked on 4.6%, the S&P jumped 6.5% for its biggest monthly gain since October, while the Nasdaq rallied 6.6%.
Meanwhile, for the second quarter: the Dow rose 3.4% for a third winning quarter, the S&P 500 added 8.3% for its biggest quarterly advance since Q4 2021, while the Nasdaq surged 12.8%.
Finally, for the first half of 2023, the Nasdaq soared 31.7%, its best six-month start to a year since 1983, while the S&P 500 popped 15.9% for its best first half since 2019. The 30-stock Dow is up a modest 3.8%.
The holiday-shortened week ahead - which will see U.S. stock markets close early at 1:00PM ET on Monday and remain shut on Tuesday for the Fourth of July Independence Day holiday - will likely be another eventful one.
On the economic calendar, most important will be Friday’s U.S. jobs report. As per Investing.com, nonfarm payrolls are forecast to rise by 200,000 in June, while the unemployment rate is seen holding steady at 3.7%.
Meanwhile, the Institute for Supply Management's (ISM) manufacturing survey index is scheduled for Monday, followed by the ISM service-sector PMI on Thursday.
Elsewhere, the release of the Fed minutes on Wednesday will also be watched closely for any clues on the outlook for monetary policy ahead of the July FOMC meeting.
Currently, financial markets are pricing in an 86.8% chance of a 25 basis point rate hike at the next policy meeting on July 26, according to Investing.com’s Fed Rate Monitor Tool.
Regardless of which direction the market goes, below I highlight one stock likely to be in demand and another which could see further downside.
Remember though, my timeframe is just for the week ahead, July 3-7.
Stock To Buy: JPMorgan Chase
I expect shares of JPMorgan Chase (NYSE:JPM) to outperform in the coming week, with a potential breakout to a new 52-week high on the horizon, as the largest U.S. bank announced plans to raise its quarterly dividend after clearing the Federal Reserve’s annual stress test.
The financial services giant said late Friday that it plans to increase its quarterly common stock dividend to $1.05 per share starting in the third quarter of 2023, up 5% from its current $1.00 per share dividend payout.
It also declared that it would continue to buy back shares under its existing share repurchase program previously approved by its board.
"We continue to maintain a fortress balance sheet with strong capital levels and robust liquidity,” CEO Jamie Dimon said in Friday’s statement, which came after the market closed.
“We will continue to use our capital to invest in and grow our market-leading businesses to support clients and communities throughout the world, pay a sustainable dividend, and return any remaining excess capital to our shareholders,” Dimon continued.
JPM stock closed Friday’s session at a 16-month high of $145.44, a level not seen since February 2022. At current levels, the New York-based lender has a market cap of $425 billion, earning it the status of the most valuable bank in the world.
Year-to-date, shares are up +8.4%, significantly outperforming industry peers such as Bank of America (NYSE:BAC) (-13.4%), Wells Fargo (NYSE:WFC) (+3.4%), Morgan Stanley (NYSE:MS) (+0.5%), Goldman Sachs (NYSE:GS) (-6.1%), and Citigroup (NYSE:C) (+1.8%).
JPMorgan is scheduled to deliver second-quarter earnings on Friday, July 14, with both analysts and investors growing increasingly bullish on the Dow giant.
Earnings estimates have been revised upward 11 times in the last 90 days, compared to zero downward revisions.
Consensus expectations call for earnings per share of $3.75, up 35.9% year-over-year. Revenue is anticipated to jump 27% from last year to $39 billion, reflecting strong growth across its key business segments.
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Stock To Sell: Levi Strauss
I believe Levi's (NYSE:LEVI) stock will suffer a challenging week ahead, as the struggling denimwear apparel company will deliver disappointing earnings in my view and provide a weak outlook due to the tough economic environment that has weighed on demand for its clothing.
Levi’s financial results for the second quarter are due after the closing bell on Thursday, July 6 at 4:10PM ET.
Underscoring several near-term headwinds Levi’s faces amid the current macro backdrop, an InvestingPro survey of analyst earnings revisions points to mounting pessimism ahead of the report, with analysts slashing their EPS estimates ten times in the last 90 days, compared to zero upward revisions.
Options trading implies a 9% swing for LEVI shares after the update drops. Levi’s plunged 16% after its last earnings report on April 6.
Consensus expectations call for the jeans manufacturer to report second-quarter earnings of $0.03 per share, collapsing 90% from EPS of $0.29 in the year-ago period, as it grapples with higher operating costs.
If that is confirmed, it would mark Levi’s lowest quarterly profit since Q2 2020, when coronavirus-related shutdowns wreaked havoc on the global economy.
Meanwhile, revenue is seen falling about 10% year-over-year to $1.33 billion as the company was forced to offer higher discounts and promotions than previously anticipated amid the uncertain demand environment.
That leads me to believe that Levi’s management will strike a cautious tone in its forward guidance to reflect declining operating margins and higher cost pressures in its ongoing effort to clear unsold inventory from its shelves.
LEVI stock - which fell to a three-year low of $12.80 on May 25 - ended at $14.43 on Friday. At current levels, the San Francisco-based company has a market cap of about $5.7 billion.
Shares are down 7% year-to-date, underperforming the broader market by a wide margin over the same timeframe.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.