Wall Street Brunch: Who Holds Sway? Powell Or Cook? (NASDAQ:AAPL)

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The Fed’s dot plot is key after a strong jobs report. (0:17) Apple’s biggest WWDC keynote since the iPhone intro. (5:07) Tesla vote on Musk pay package looms. (7:20)

This week brings a big face off (apart from Oilers vs. Panthers). What currently has the biggest influence on the markets?

If you’ll permit me to paraphrase Bill the Butcher in Gangs of New York (and butcher an impression):

“At my challenge, by the ancient laws of finance, we have met on this chosen week, to settle for good and all who holds sway over Wall Street: the Fed, who sets interest rates for this fine land, or the AI trade that has driven equity returns for the last year.”

So, which will have the biggest impact? What the Fed has to say about the path of rates or what Apple has to say about its AI plans at its Worldwide Developers Conference.

The Fed statement, the updated Summary of Economic Projections and Chairman Jerome Powell’s press conference are due on Wednesday. That same day, before the bell, the market gets the May CPI figures. Economists forecast a 0.3% month-over-month increase in the core inflation rate and a drop in the annual rate to +3.5% from +3.6%.

Seeking Alpha analyst Damir Tokic said that if CPI comes in at the level anticipated, it will fit the recent trend of sticky and elevated inflation and prevent the Fed from responding to a sharply slower economy.

The market is pricing in a near certainty of no move on rates, so the Fed’s dot plot will be the main focus coming off the strong May jobs figures.

Tom Graff, chief investment officer at financial services firm Facet, notes that in the March dot plot for year-end 2024 the Fed had the unemployment rates at 4%, core PCE at 2.6% (currently at 2.8%) and 3 rate cuts.

“We aren’t far off on the first two, and yet sentiment has changed A LOT about the third,” Graff said.

After May payrolls came in up 272,000, Citi chief U.S. economists Andrew Hollenhurst pushed expectations for a first Fed cut to September from July, but still expects 75 bps of cuts, arguing that “hiring demand, and the broader economy, is slowing” and the “household survey continues to show much weaker job creation.”

But that’s against consensus with fed funds futures are now pricing in only one quarter-point cut in 2024, with the odds of a September quarter-point cut falling to 50/50.

As for the 2025 outlook, strategists are questioning just how confident the FOMC can be without knowing the results of the November election.

Tongue in cheek, Graff predicts that :”The Fed cuts in September, despite the looming election” and “Come 2028, Wall Street will still be writing rates commentary saying the Fed will hesitate to hike/cut ahead of a contentious election.”

While Fed cuts are still up in the air, other major central banks have kicked off the loosening cycle. Both the ECB and Bank of Canada lowered benchmark rates by 25 bps.

Seeking Alpha’s Rena Sherbill spoke with David Alton Clark, who leads The Winter Warrior Investor Investing Group about what this means for growth stocks.

“The sentiment, I’m always looking at the sentiment. Off the charts bullish in late 2023, early 2024. We had SPY was 21 forward, the historical range is 15 to 20. So it was over the top of the high-end of the historical range, as far as being over overvalued. And then it was also at 70 RSI, Relative Strength Index, which is the point at which the market became overbought as well.

I had a majority of my growth stocks were up big. I had a lot that were up 40%, 50%, 100%. So I just took profits on those and locked all that in. At this point in time, we’re still at those highs.

The ECB just cut by a quarter percent, which they’re not doing nearly as well. Their economy is not doing nearly as well as ours. This AI boom has really got the U.S. economy firing on all cylinders right now. That’s why it’s harder for the Fed to cut rates at this time, but the ECB cutting a quarter and yesterday, Canada cut a quarter that gives Powell a little breathing room to possibly cut a little sooner than expected.

Recently, everyone’s been pushing back the rate cuts of the Fed because the economy of the U.S. has been doing great, but with those two different regions cutting their rates by a quarter point, I think that gives Fed a little room to cut earlier than many expected.

I would feel more confident in making a growth stock pick right now under those conditions that are more favorable towards growth stocks because they’re long duration and when interest rates are lower, the value of the future cash flows is higher on those types of stocks.”

You can hear the full interview with David Alton Clark on Monday morning on the Investing Experts podcast.

Back to this other major headliner this week, Apple kicks off its annual developers conference – WWDC – on Monday with a keynote address that is perhaps the tech giant’s most widely anticipated speech since the iPhone was introduced nearly 17 years ago.

Wedbush analyst and Apple bull Dan Ives says: “In a nutshell, (the WWDC) is a pivotal moment in Apple’s future as the developers are the hearts and lungs of the Cupertino growth story and will now start a new AI driven chapter in the Apple growth story for the coming years.” Ives has a $275 price target on the stock.

Morgan Stanley analyst Eric Woodring, who also holds an Overweight rating, says: “We expect Apple to leverage WWDC to introduce new, Gen AI-enabled software upgrades … that will catalyze iPhone refreshes later this fall, helping to accelerate iPhone replacement cycles, drive a return to Y/Y unit growth for the first time since FY22 and extend the 9 points of stock outperformance Apple has seen since F2Q earnings.”

Among notable earnings this week, GameStop (GME) was on the calendar but as you know they reported early on Friday, with a miss prompting a selloff of nearly 40%.

On Monday, Yext (YEXT), Calavo Growers (CVGW) and FuelCell Energy (FCEL) will report.

Tuesday brings Oracle (ORCL), Casey’s General Stores (CASY), ZEEKR (ZK) and Rubrik (RBRK).

Broadcom (AVGO), Dave & Buster’s Entertainment (PLAY) and Oxford Industries (OXM) weigh in on Wednesday.

Thursday sees results from Signet Jewelers (SIG), Adobe (ADBE) and RH (RH).

For those looking to hone their investing skills before Q2 earnings season rolls around, Seeking Alpha is holding its first Investing Summit on June 18 in New York.

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The conference is open to Seeking Alpha subscribers only. You can register at Seeking Alpha Investing Summit – and listeners can enter the code PODCAST at checkout for a 30% discount on your pass.

In the news this weekend

Tesla (TSLA) shareholders meet on Thursday during the company’s annual meeting to vote on twelve proposals. The proposals include the high-profile proposal of ratifying Elon Musk’s compensation under the CEO pay package that was previously approved at a special meeting in 2018.

On Saturday, the world’s largest sovereign wealth fund, Norway’s $1.7 trillion oil fund, said it would vote against Musk’s $56 billion pay package, saying it is “concerned about the total size of the award, the structure given performance triggers, dilution and lack of mitigation of key person risk.”

Piper Sandler thinks it is clear that Tesla’s share price would fall if the compensation award was rejected. The other key issue is whether Elon Musk walks away from the shareholder meeting with his goal of landing 25% of voting control of the company over time.

If not, Morgan Stanley warned that Tesla shareholders should be prepared for the company to significantly slow down or curtail its direct investment in sensitive and advanced AI efforts due to Musk’s prior statements of wanting to be an effective steward of powerful AI technology.

For income investors, here come the AI payouts.

Alphabet (GOOG) (GOOGL) goes ex-dividend on Monday with a payout date on June 17. And Nvidia (NVDA) goes ex-dividend on Tuesday with a payout date of June 28.

Kohl’s (KSS) goes ex-dividend on Wednesday and Taiwan Semi (TSM) goes ex-dividend on Thursday.

And in the Wall Street Research Corner, Piper Sandler technical analysts highlight 7 actionable ideas, saying they see equities as “semi-charmed — pleasant but with some problems.”

Leadership “is narrow, and the market is not broadening out,” which is “raising concerns about the market’s overall health heading into the summer.”

On the long side they noted Tesla, where shares have bounced off the lower end of a symmetrical triangle and its relative strength has inflected higher off multi-month lows.

And News Corp. (NWSA), where shares cleared resistance from the 2021 highs, and relative strength has inflected higher off the midline.

On the short side they highlight J&J (JNJ), where shares are reaching 2023 lows, with relative strength that has been deteriorating to multi-year lows.

And Wendy’s (WEN), where shares “have violated key support near $17.15” and the relative strength here has also deteriorated to multi-year lows.