Will stocks keep climbing, and 2 other things to watch in the market next week

Posted: 27 May 2022 5:28 pm
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The major indexes snap losing streaks but investors remain wary. Also: Notable earnings and the end to the red-hot housing market?

As we head into the holiday weekend, the markets are looking up. The Dow jumped 500 points Friday to finish the best week in about two months.

Wall Street responded favorably to the Federal Open Market Committee (FOMC) minutes released Wednesday, in which the Fed signaled further rate hikes, and a report of slowing inflation out Friday. Those and optimistic forecasts for some major retailers helped the Nasdaq Composite, S&P 500 and Dow Jones Industrial Average (DJIA) break multi-week losing streaks.

Investor sentiment, however, remains overwhelmingly negative.

More than 53% of respondents in the weekly American Association of Individual Investors (AAII) said they’re bearish as of Wednesday. Just 19.8% are bullish, while 26.7% don’t know what to expect. So while we saw some relief this week, investors aren’t convinced we’ve yet to hit bottom.

The markets will be closed Monday in observance of Memorial Day, but here are three things to watch in the market next week that could affect your portfolio.

1. Will the market bounce continue?

Retail stocks have been on a wild ride lately, as higher prices cut into profits and investors try to evaluate short-term macroeconomic uncertainties with long-term value prospects.

Shares of Target (TGT) plummeted 25% last week after the company reported mixed first-quarter earnings and said supply chain troubles and high fuel costs hit profits. This has been a common theme among retailers in the past few weeks, as rising costs and high interest rates affected both consumers and companies alike, with little sign that the attenuation of inflation will come any time soon.

But investors in some retail stocks are shrugging off the weaker-than-expected guidance of some retailers.

Dick’s Sporting Goods (DKS) saw fewer sales in the first quarter and said it expects waning sales to continue through the year. The stock took a premarket beating on the news but rallied after the bell and is now up 18% in the past two days. Dollartree (DLTR) and Macy’s (M) are leading the market Thursday after both reported stronger-than-expected first-quarter earnings and revenue and raised earnings guidance. Dollar General (DG), which also reported sales and earnings higher than what Wall Street analysts had anticipated, lifted its sales guidance for the year despite the ongoing inflationary uncertainties.

Meanwhile, the S&P keeps bouncing off bear market levels. It’s too early to call a bottom — investors were duped once already in mid-March — and this could be what investors call a dead cat bounce. That’s when the market recovers briefly after a substantial fall before continuing its downward trend.

Some experts say the market hasn’t capitulated yet — gone totally bearish, which often precedes a recovery.

Though there’s a natural tendency for investors to want to see an upturn, it’s too early to say. But it’s worth watching next week.

2. Earnings roundup

Earnings season is coming to a close, but next week we’ll see the financials of a few more notable companies.

On Tuesday, personal computer company HP (HPQ) reports. Billionaire investor Warren Buffett’s Berkshire Hathaway revealed ownership of 121 million HP shares in early April, making it the biggest stakeholder in the PC and printer maker. HP’s stock price at the time of his purchase was right around its current level, so he must think the stock is undervalued at its current price.

A number of beaten-down tech stocks are also slated to report next week, including Salesforce (CRM), Uipath (PATH) and Asana (ASAN). Both Asana and Uipath are trading at their lowest levels since going public in 2020 and 2021, respectively. Meanwhile, Salesforce stock has retreated almost 50% from its recent high.

Cybersecurity companies SentinelOne (S) and Crowdstrike (CRWD) report midweek, as do meme-stocks Gamestop (GME) and Chewy (CHWY). A mid-March meme-stock revival sent shares of Gamestop soaring 143% over ten consecutive trading sessions of positive returns. The stock has since given up these gains but has been trending higher over the past week ahead of earnings. Regardless of what comes out of the company’s earnings next week, volatility could ensue.

The following list isn’t comprehensive but includes some of the most notable companies scheduled to report next week, which could move some closely watched stocks.

Tuesday, May 31

Wednesday, June 1

Thursday, June 2

3. Is the red-hot housing market cooling off?

The sudden surge in mortgage rates and high construction costs might be finally calming the red-hot housing market.

New home sales dropped 16.6% in April, the fourth consecutive month of declines, to the lowest level in two years. Rising costs and rates are now pricing people out of the market, according to Realtor.com, lighting a fire under some sellers who are now worried they may miss out on the blistering housing market.

The supply of homes for sale jumped 9% last week compared to the same week a year ago, suggesting sellers are eager to cash in before the market cools off. With homebuyers having a greater number of homes to choose from, the competitiveness of the housing market might soon subside.

For a look at how to buy homebuilding stocks, see our dedicated guide.

Next week’s major US economic reports include a number of indicators that will give investors a deeper look into the state of the housing market, including the S&P CoreLogic Case-Shiller national home price index, the ​​Federal Housing Finance Agency (FHFA) national home price index and the US Census Bureau’s Construction Spending report.

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At the time of publication, Matt Miczulski owned shares of PATH, ASAN, S and CRWD.

The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

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