Stock Market This Week: Five Themes to Watch

After several sessions in the U.S. equities market that suggested a recovery rally was underway, last Friday’s print brought many investors back to reality. The benchmark S&P 500 index slipped 1.6% on the day while the technology-centric Nasdaq suffered a 2.5% loss. Overall, the major indices made little to no progress last week.

Although the latest move was disappointing, some perspective is in order. Since February 2020, the real M2 money stock has expanded 26%. During the same period, the purchasing power of the dollar declined by almost 11%. To be fair, the catalysts that sparked these changes – government stimulus checks and lowered borrowing costs – may have been necessary to address the COVID-19 pandemic. Still, necessity itself does not exempt us from consequences.

Further, the loss of life across multiple age brackets and the sudden disruption of the global health crisis on non-essential businesses cannot be easily overcome with monetary and fiscal tools. Quite frankly, if it were that easy, every country would gleefully implement such measures and stimulate themselves to growth.

The harsh reality is that the economy may need a cooling-off period, presenting the main context for the five themes to watch for this coming week.

Elon Musk is All Over the Map

Not a stranger to controversy, Tesla (TSLA) CEO Elon Musk caused quite the stir, initially firing up the blogosphere and later sparking a response from President Joe Biden. First, the outspoken entrepreneur sent out a series of emails demanding that Tesla employees who transitioned to telecommuting during the pandemic return back to the office.

Of course, the request didn’t sit well with white-collar workers, whether employed by Tesla or some other organization. Surveys indicate that a majority of people prefer telecommuting, giving them more personal time and overall enjoyment. But Musk wasn’t done. In an email the following day, the chief exec expressed having a “super bad feeling” about the economy.

His solution? Tesla will eliminate approximately 10% of salaried employees and lean more heavily on hourly workers. In a way, these announcements are self-serving as refusing to return to the office makes one an easier target for the workforce reduction protocol.

President Biden took issue with Musk’s negative economic outlook, sarcastically wishing him “lots of luck on his trip to the moon.” Still, if the visionary entrepreneur is so dour, it’s an issue worth investigation.

Crypto Scams Bode Poorly for the Sector

Another sector that didn’t end last week on a pleasant note was the cryptocurrency market. After making conspicuous progress during Memorial Day weekend with the total market capitalization of cryptos reaching $1.32 trillion, the segment has again fallen on hard times. Several benchmark assets are below psychologically significant price levels while the total market cap dipped to $1.21 trillion on Friday.

Given the wildness on both sides of the aisle, it’s possible for cryptos to mount a comeback. However, according to a recent report by the Federal Trade Commission, since the start of 2021, “more than 46,000 people have reported losing over $1 billion in crypto to scams.” Moreover, the median individual reported loss was a staggering $2,600.

These scams and the people they lure in point to a larger problem: exuberant speculation, particularly among novice participants. Throughout the new normal, many young traders played various markets with all-or-nothing wagers. But now that popular speculative sectors like cryptos have tumbled, the retail investor community may not have the financial capacity to bolster valuations.

Irony in the Jobs Report

On the surface, the latest monthly snapshot of the labor market should have provided a positive catalyst for the broader equities sphere. Per The Wall Street Journal, U.S. employers added 390,000 jobs in May, which exceeded economists’ consensus target calling for 328,000 jobs added. As well, wages grew 5.2% on the year.

So, why did stocks fall on the day of this seemingly encouraging disclosure? For one thing, the new employment opportunities represented the slowest pace of growth since April of last year. Plus, the aforementioned wage growth was down from the 5.5% rate seen a month prior. But the biggest catalyst could be the forward monetary implications of the jobs report.

According to a Reuters article, the solid numbers from the labor force suggests that the Federal Reserve will continue with its aggressive policy-tightening strategy. Essentially, the jobs report gives the Fed a margin of safety to do what it needs to control inflation. Otherwise, a poor employment figure may have convinced the central bank to let off the accelerator, which presumably would have been better for the stock market.

Firearms Industry Under Examination

Immediately following the senselessly tragic mass shooting at Robb Elementary School in Uvalde, Texas, calls for restricting semiautomatic rifles rang out, reaching the very top of global power. The complexity of this issue is that the shooter purchased his firearms legally.

As if the murder of schoolchildren was not enough trauma, 20 mass shootings erupted since then (through June 2), including a sickening incident in a healthcare facility in Tulsa, Oklahoma. Taking into account the horrors compounded upon even more horrors, the urgency to address gun violence has reached a fever pitch.

Nevertheless, it’s not entirely clear what actions policymakers can take – and whether or not the public will accept them. As The Washington Post reported in 2018, there are more guns than people in the U.S. With firearms baked into the fabric of American society, any effort to restrict gun ownership will likely encounter fierce resistance.

Furthermore, as unpopular as this industry may be today, the sector directly employs 169,523 people, according to The Firearm Industry Trade Association. Considering how intertwined the market is with the defense industry, restricting firearms is easier said than done.

Earnings in Focus

Although most of the high-profile companies have already released their earnings disclosures, investors should still keep an eye out for some noteworthy reports. First up on Monday is NGL Energy Partners (NGL), a diversified midstream master limited partnership. NGL may be poised to perform well given how critical the energy sector is currently.

On Tuesday, Dave & Buster’s Entertainment (PLAY) will release its earnings report, which should be intriguing as more people return to the office. Also reporting on the same day is Casey’s General Stores (CASY), a discounted goods retailer. Should the economy start to slow, Casey’s could cynically rise because of the relevance spike.

Finally, on Thursday, investors should look to Signet Jewelers (SIG). Operating on the other end of the consumer spectrum, positive results and outlook could imply that affluent consumers are still optimistic about their prospects.