This is The Takeaway from today's Morning Brief, which you can sign up to receive in your inbox every Monday to Friday by 6:30 a.m. ET along with:
The chart of the day
What we're watching
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Economic data releases and earnings
The official start of summer is only a few weeks away. And for most market goers, that means watching the action on the Yahoo Finance app (which I strongly encourage you to download) from a beach, a park, or a pool.
While the natural inclination is to "sell in May and go away," I humbly say: please don't do that. Not just because we have bills to pay here, but because there is a litany of interesting stories to track in the markets. I would argue there are many more compelling stories for investors compared to Summer 2022.
Here is a tiny sampling of things I am watching during a summer that probably won't involve me going to a beach, pool, or house party because well — investing "stuff" is all I got going for me. The order is totally random and not in order of importance.
1. Target's stock
Shares have been hammered by close to 14% in the past two weeks since the company removed LGBTQ+ merchandise from its stores. The fear is consumer backlash means weakening sales and a missed second quarter. The company also caught a JP Morgan downgrade on concerns the restart of student loan payments in Sept. 1 will hurt sales.
Unclear if there is a near-term catalyst to jumpstart Target's stock considering all of this, which comes after another tough quarter of sales.
2. The economic impact of student loan repayments
The downgrade to Target's stock could be a canary-in-the-coal-mine indicator of what analysts and market strategists do this summer before the repayments begin. Are more retailer ratings cut? Do strategists trim their S&P 500 earnings estimates and year-end price targets? How will markets react? The market reaction to the Target downgrade was modest, but can it continue?
Make no mistake, the payment restart will be a headwind for an economy that doesn't need one.
Goldman Sachs estimates student loan repayments will subtract 0.2 percentage points from personal consumption expenditures growth this year if the loan forgiveness plan is struck down, or 0.1 percentage point if the plan stands.
Jefferies economist Thomas Simons thinks at least $400 a month in spending capacity will be removed from the pockets of those with student loans.
"So as we're now adding this back in to balance sheets that are already pretty strained by two years of very high inflation that's run significantly higher than wage growth, the capacity to absorb this in a lot of budgets I think is much worse now," Simons said on Yahoo Finance Live.
3. AI Stocks
It's time for investors to draw a differentiation in AI stocks. Not doing so could prove very painful to one's portfolio.
On the one hand, you have credible companies infusing generative AI into their businesses to unlock efficiencies and win new business. I was very impressed by what HP CEO Enrique Lores told me about how AI will transform the personal computer starting in 2024. With that, the company and rival Dell could be winners of a PC refresh cycle in 2024.
I was also surprised to learn from Hewlett Packard Enterprise CFO Tarek Robbiati that the company has secured $800 million in new AI-related business.
I fancy we may hear something positive very soon from AMD on the generative AI front. Maybe not as Earth-shattering as Nvidia, but strong enough to excite investors.
Salesforce has an AI investor day slated a week from today. And Cisco Live is underway in Las Vegas — AI discussions will probably be front and center here.
Again, these are credible companies working on cool AI stuff for the benefit of investors.
On the other end of the spectrum, you have companies such as c3.AI.
The money-losing company is being attacked by short sellers —such as the super-thorough Ben Axler at Spruce Point— for suspect accounting standards. I think many on the Street are beginning to drill down into the fundamentals of these more fringe AI plays to avoid getting burned —much like when the SPAC bubble burst.
I expect a summer of AI scrutiny, leading to a possible rotation into more credible AI stocks.
4. Apple's stock
Apple's Worldwide Developers Conference (WWDC) kicks off today (our tech editor Dan Howley will have full live coverage from Apple HQ), and it's time to see these AR/VR glasses the company has been working on for umpteen years.
Shares of the tech giant are up almost 40% year to date, in part due to hype building for another new product category for Apple. And, Apple is generally viewed as a safe-haven play.
But listen to the team at Morgan Stanley, and you get the sense these glasses have been the bigger tailwind for Apple's stock.
"We estimate the AR/VR headset market can grow to $100 billion by 2030, and expand 5x by 2037, to over $500 billion," Morgan Stanley analyst Erik Woodring said in a research note ahead of the event.
I am not sold on Apple's AR/VR glasses given the expected super high price point. And, I know I am not the only one who's skeptical about Apple having amazing success with a category that has always proven challenging. And how are they doing with that HomePod?
Could we see a post-WWDC summer swoon in Apple's stock as glasses hype fades and recession talk resurfaces?
Don't rule it out.
5. The Fed
The Fed could singlehandedly cut summer vacations short if it raises interest rates at its June 14 meeting. Why? The market has bet on the Fed pausing on rate hikes at the meeting, with maybe one more hike for the cycle coming at the July 26 gathering.
Hopes for a Fed pause have fed (no pun intended) the markets' naturally bullish inclination — the Nasdaq Composite is up more than 25% on the year. The FANG+ Index is up about 65%.
If the Fed doesn't deliver a pause, it may be a Summer Reset for markets.
And that is one trend you won't want to be watching from a no-cell-service zone like the beach.