Good morning investors,
The market faces a pivotal day with Home Depot kicking off retail earnings and crucial economic data on tap. Here’s everything you need to know before the opening bell:
BOTTOM LINE
US markets continue to build on their recent recovery rally despite Moody’s credit downgrade, with strong focus on today’s Home Depot earnings and Fed commentary. Major indices have now erased April’s tariff-induced losses, with volatility normalizing dramatically as US-China trade tensions ease under the temporary 90-day tariff reduction agreement.
KEY ECONOMIC INDICATORS
The Conference Board’s Leading Economic Index (LEI) will be released at 10:00 AM ET today, with expectations for a -0.4% monthly decline in April following March’s -0.7% drop. This key forward-looking indicator has declined in 13 of the last 14 months, suggesting persistent economic challenges ahead. A worse-than-expected reading could accelerate expectations for Federal Reserve rate cuts.
Today’s LEI report follows disappointing housing data, with the National Association of Home Builders (NAHB) Housing Market Index plunging to 34 in May versus an expected 40, reaching its lowest level since December 2022. Notably, 78% of builders reported difficulties pricing homes due to uncertainty around material costs driven by tariff concerns.
The existing home sales report for April is scheduled for Thursday, May 22, which will provide further insights into the housing market’s health. Analysts will watch closely for signs of how higher mortgage rates and economic uncertainty are affecting homebuyer demand.
CORPORATE EARNINGS
Home Depot (HD) headlines today’s earnings calendar, with results due before market open. Analysts expect Q1 earnings of $3.59 per share, down 1.1% year-over-year, with revenue forecast at $39.1 billion (+7.5% YoY). Market watchers anticipate management to express confidence in handling Trump’s tariffs due to the company’s massive scale and the needs-based nature of home improvement spending.
Other notable reports today include:
- Palo Alto Networks (PANW): The cybersecurity giant reports after the close
- Toll Brothers (TOL): The luxury homebuilder’s results will provide insights into the high-end housing market
- Doximity (DOCS): Expected to report 20% revenue growth in its healthcare technology business
While lacking market-moving mega-caps, today’s slate includes companies providing valuable insights into key economic segments, particularly consumer spending and the housing sector.
MARKET TRENDS
US equity futures suggest a modestly positive open this morning, building on Monday’s momentum. The S&P 500 added 0.1% yesterday, extending its winning streak to six consecutive sessions, while the Dow Jones gained 0.3% and the Nasdaq edged up slightly. This recovery has been sufficient to turn the S&P 500 and Dow positive for 2025 (up 1.3% and 0.3% respectively), though the Nasdaq remains slightly negative (-0.5% YTD).
The market’s remarkable recovery from April’s tariff-induced sell-off has seen the S&P 500 surge more than 20% from its intraday low. Technology continues leading market performance, with the sector up 2.25% in recent sessions, driven by AI-related stocks. Nvidia has returned to the $3 trillion market cap club after announcing an 18,000-chip deal with Saudi Arabia’s AI program.
Market volatility has normalized dramatically, with the VIX at 18.14 as of May 19, down from April’s peak of 60.13 during tariff-related market turmoil. This represents the fastest drop from above 50 to below 20 in VIX history, signaling rapidly decreasing fear among investors.
GEOPOLITICAL EVENTS
Friday’s Moody’s downgrade of US sovereign credit (Aaa to Aa1) has had a limited impact on markets despite citing “the increase over more than a decade in government debt and interest payment ratios.” Treasury yields rose following the announcement, though Moody’s changed its outlook from negative to stable.
The US-China trade situation has significantly improved following the May 12 agreement to reduce reciprocal tariffs for 90 days (US tariffs on Chinese imports from 145% to 30%, China’s tariffs on US goods from 125% to 10%). This temporary arrangement allows for broader negotiations and has provided crucial relief for markets, though uncertainty remains about long-term resolution.
Market analysts have described the US-China deal as “better than expected” and a “dream scenario,” with expectations for stocks to potentially reach new highs in 2025 if talks progress positively. The agreement has already triggered a swift resumption of trade between the world’s two largest economies.
INDUSTRY NEWS
The healthcare sector remains under pressure following Wall Street Journal reporting that the Department of Justice is conducting a criminal investigation into UnitedHealth Group for possible Medicare fraud. Despite the company’s denial of being notified about any investigation, UnitedHealth shares plunged nearly 13% on May 15 and are down approximately 49% year-to-date.
In retail consolidation news, Dick’s Sporting Goods announced its plan to acquire Foot Locker for $2.4 billion, maintaining the Foot Locker brand as a standalone business. The deal represents a 66% premium over Foot Locker’s average share price for the past 60 days, giving Dick’s international exposure for the first time.
Capital One Financial completed its acquisition of Discover Financial Services on May 18 following regulatory approvals. The all-stock transaction valued at $35.3 billion creates a global payments platform with 70 million merchant acceptance points in more than 200 countries.
ANALYST OPINIONS
Analysts continue to reposition portfolios amid improving sentiment but lingering uncertainties:
Morgan Stanley upgraded Astera Labs (ALAB) to Overweight from Equal Weight, citing “a good entry point as AI enthusiasm comes back to the group,” while downgrading Goldman Sachs (GS) to Equal Weight from Overweight, noting GS has “the fastest twitch response within the Financials sector to recession risk.”
Bernstein downgraded both Target (TGT) and General Motors (GM) to Underperform from Market Perform, with the GM downgrade specifically citing tariff concerns: “As tariff pressures intensify and consumer sentiment weakens, we expect GM’s shares to remain under pressure.”
Stephens & Co. today reiterated its Equal-Weight rating on EZCORP (EZPW), maintaining a $17 price target, while Scotiabank maintained a Sector Outperform on Targa Resources (TRGP) but lowered its price target from $199 to $193.
Several analysts have highlighted companies with limited international sourcing exposure as defensive plays amid continuing tariff uncertainty, while semiconductor companies with overseas manufacturing (AMD, NVDA, AVGO, MRVL) are viewed as less exposed to China tariffs than those with large US-based footprints.
MARKET SENTIMENT
Market sentiment has improved significantly from April’s extreme pessimism, but institutional positioning reveals continued caution. The equity put/call ratio at 0.43 shows growing optimism, though AAII investor sentiment surveys indicate retail investors remain more bearish than historical averages.
Investors now expect fewer interest rate cuts from the Federal Reserve this year (approximately two total for 2025), focusing on economic resilience rather than concerns about prolonged high rates.
Technical indicators suggest the recovery from April’s lows has momentum to continue, though some consolidation may occur after rapid gains. Key levels to watch include 6,090 resistance for the S&P 500 and 19,500 for the Nasdaq Composite.
Stay tuned for updates throughout the trading day as we monitor market reactions to Home Depot’s earnings and the Conference Board’s Leading Economic Index.
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