Tapestry Inc Share News (TPR.US)

Indexes end: S&P 500 and Nasdaq up, Dow flat

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Cons discr leads gainers, real estate biggest decliner

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STOXX Europe 600 slips 0.5%

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Dollar, bitcoin gain; gold slips; crude slides 3.0%

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10-year Treasury up at 3.80%

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S&P ENDS HIGHER AFTER POWELL WRAPS UP TESTIMONY (1600 ET/2000 GMT)

The S&P 500 snapped three days of losses to end higher on Thursday, even as Federal Reserve Chairman Jerome Powell beat a hawkish drum and suggested the central bank has not reached the end of its tightening cycle.

Amazon jumped 4.3%, while Apple, Microsoft and Tesla each gained almost 2%.

Appearing before the Senate Banking Committee, Powell reiterated his view that more interest rate hikes are likely in the months ahead, a sentiment echoed by Fed Governor Michelle Bowman earlier in the session.

Stocks climbed last week after the Fed kept interest rates steady and signaled it would likely raise rates another 50 basis points by year end.

Investors are betting that improved inflation readings may mean the Fed raises rates only once more in 2023 and that the end of the central bank's interest rate hiking cycle is near.

The S&P 500 has now gained about 14% in 2023, and it is trading around 19 times expected earnings, an elevated level, according to Refintiv. In an average year, earnings growth is somewhere between 5% and 10%, said Jason Pride, chief of investment strategy and research at Glenmede. But in the near future, growth is probably going to be on the lighter side, even sluggish, due to higher interest rates, he said. "At the end of the day, that's not going to feel wonderful. It's not off to the races," Pride said. "If things are sluggish, should markets be pricing 20 plus times forward earnings? I don't think so."

Five of 11 S&P 500 sector indexes rose, led by a 1.5% gain in consumer discretaionary. Real estate weighed the most, down 1.4%.

Here is your final market snapshot:

BULL OR BEAR, STOCK RETURNS POISED TO FALL BELOW AVERAGE (1200 ET/1600 GMT

Whether it's a bull or bear market remains to be seen, but there are several reasons that equity returns will be below average in coming years, warns Solita Marcelli, chief investment officer Americas for UBS Global Wealth Management.

While the S&P 500 is up more than 20% from its closing low in October - a common definition of a new bull market - only in hindsight will it be clear if the bear market has ended, Marcelli says.

There have been four instances of 20% plus gains within a bear market since World War II that have proved ephemeral: 1947, 2001, 2002 and 2008.

"In these episodes, stocks subsequently sold off and made new bear market lows," she says in a note on Thursday.

Several reasons indicate equity returns will be below average in coming years. Earnings have been resilient, leaving less room to rebound strongly in the event of a soft landing, valuations look elevated and historically, such valuations have set the stage for below-average equity returns, Marcelli said.

Annualized returns tend to be weaker when the trailing 12-month trend price-earnings ratio is high, data going back to 1960 show. The S&P 500 is now trading at more than 21 times trend earnings, which is elevated compared to history, according to Marcelli. Refinitiv data shows the S&P 500 trading at around 19 times expected earnings.

Current valuations suggest annualized returns in the mid-single digits look plausible over the next 10 years - below the long-term average annualized gain of 10% since 1960.

"For long-term investors, we suggest looking beyond the debate about whether the current environment is a bull market or not," Marcelli says. "One way to supplement potentially weaker returns from public equity markets would be to add to private market exposure."

GENDER EQUALITY BY 2154? (1400 EDT/1800 GMT)

A report this week by the World Economic Forum found that it could take the world another 131 years to close the gender gap.

Gender gaps in education, health, work, wages and political participation continue to persist across the world, said Goldman Sachs strategists Sharon Bell and Sara Grut in a note.

For instance, while the world's most populous country has recorded stellar GDP growth in recent years, India has seen its female labor force participation fall even further.

The strategists say that increasing the overall labor force participation rate for men and women back to previous peak levels of 61% could increase India's potential annual GDP growth to 8% from 7%.

Overall, the female labor force participation is at 73% for developed market economies, and just 58% for emerging market economies.

While female labor force participation lags in emerging markets, in their developed market counterparts women face a bigger gender pay gap.

According to International Labor Organization data, women in developed markets on average earn 77 cents to every dollar that their male peer earns, compared to the women in emerging markets who earn 82 cents to every dollar earned by their male counterpart.

Further, women have a greater exposure to jobs that are highly exposed to AI automation, but are highly underrepresented in the development of the field.

Just halving the pay and employment gap between men and women could raise the level of GDP across developed and emerging markets by between 5% and 6%, said Goldman Sachs.

(Bansari Mayur Kamdar)

OFFICE REAL ESTATE RISKS STILL FIRMLY ON INVESTORS' RADAR (1350 ET/1750 GMT)

Worries over potential cracks in the U.S. commercial real estate market haven't quite faded after the regional banking turmoil, especially in the office sector.

Beyond concerns about the ability of regional banks to continue lending, post-pandemic work from home trends and rising interest rates mean real estate borrowers may struggle to pay back loans, which could in turn hit banks already struggling with liquidity issues.

Ben Miller, CEO of Fundrise, expects between 20% to 30% of U.S. office buildings to go into foreclosure.

And with around $500 billion of loan maturities coming due in the commercial mortgage-backed securities market over the next year, Miller says the trickle down effects could be significant, both for banks and other investors in the sector, like private equity firms.

"Defaults will force the rating agencies to downgrade the paper, (and) most of the senior paper is owned by banks and insurance companies," Miller told the Reuters Global Markets Forum.

"Those impairments will force the banks to increase reserves, which will reduce overall market liquidity."

The S&P 500's office real estate investment trust index has slumped 23.4% in 2023 due to these worries.

It's on the Fed's radar as well, with Chairman Jerome Powell saying the central bank has identified banks with a higher concentration of commercial real estate and is working with them.

Meanwhile, Miller is eyeing opportunities to invest in the residential real estate sector as developers look for alternative sources to pay back loans.

Fundrise's Opportunistic Credit Fund will invest in multifamily properties that need mezzanine debt or preferred equity to pay down senior loan, he said.

(Join the Reuters Global Markets Forum on Refinitiv Messenger for live interviews: https://refini.tv/3NDdXTq)

(Lisa Mattackal)

NVIDIA'S PE MULTIPLE TUMBLES FROM A MONTH AGO (1250 EDT/1660 GMT)

Nvidia's AI-driven rally may have petered out in recent sessions even as the chipmaker's stock is still trading near record highs and its earnings multiple is now far lower than at the start of the company's monster rally a month ago.

Santa Clara, California-based Nvidia was last up 0.4% on Thursday and remains over 40% higher since May 24, when its revenue forecast stunned investors when management said it was boosting supply to meet surging demand for artificial intelligence chips.

Even after the stock's gains over the past month, Nvidia's forward PE multiple has dropped. That is due to analysts drastically boosting their earnings estimates.

Analysts covering Nvidia have raised their 2024 earnings per share estimates by an average of 69% over the past 30 days, according to Refinitiv.

The chipmaker is now trading at about 46 times expected earnings, down from 84 on June 14 and 61 times expected earnings just before Nvidia's quarterly report last month.

With its recent gains, Nvidia's market capitalization reached $1.07 trillion as of Thursday. That is nearly double the value of the second most valuable chipmaker, Taiwan Semiconductor Manufacturing Co, at $535 billion.

(Noel Randewich)

MORE MARGIN PAIN FOR DISCRETIONARY BRANDS AHEAD? (1210 EDT/1610 GMT)

Inventory levels across discretionary retailers and brands including Levi Strauss and Under Armour have continued to remain high, which coupled with aggressive Wall Street expectations could lead to downbeat gross margin reports for many in the second quarter, UBS analysts said.

The discretionary retail industry's inventory level rose 4% in the first quarter compared to a year earlier, while second-quarter sales are likely to decrease 2.4%, according to UBS. With demand still weak, excess product stocks could force brands to offer promotions or cut product prices, denting margins.

"There is a relatively high probability retailers are holding more inventory at this time than they expected to and... need to take deeper than expected markdowns to clear excess goods," analyst Jay Sole wrote.

"The inventory problem will persist longer than the market expects," Sole added.

With companies likely to purchase inventory for the second half of 2023, assuming consumer spending trends would improve, the margin weakness could also spill into the next two quarters and lead to profit forecast cuts, UBS said.

UBS also called out Vans sneakers maker VF Corp, Coach handbag owner Tapestry and Columbia Sportswear among companies most at risk for missing second-quarter margin estimates.

(Deborah Sophia)

DEJA VU ALL OVER AGAIN: JOBLESS CLAIMS, HOME SALES, ET AL (1055 ET/1455 GMT)

Fresh data on Thursday provided few surprises, with the labor market showing further cracks, high mortgage rates and low inventories holding back home sales and the Fed's tightening campaign finally beginning to soften the U.S. economy.

The number of U.S. workers filling out first-time applications for unemployment checks held steady last week at 264,000, landing slightly to the north of the 260,000 consensus.

Thus, it maintains the prior week print, which was the largest number of initial claims since October 2021, and marks the series' 20th week above the 200,000 level.

But the trend is on the upswing. The Labor Department's four-week moving average of initial claims, which irons out weekly volatility, rose by 3.4%.

It would appear the recent flurry of announced layoffs, as presented by Challenger, are starting to make themselves felt. More to the point, its a sign that the tight labor market is beginning to show signs of slack, which bodes well for the inflation outlook and suggests the Fed's efforts to cool down the economy could be having their intended effect.

Bill Adams, chief economist at Comerica Bank, says the recent uptick is "pointing to a cooldown in the job market underway," while adding that "The rise in jobless claims would have to go quite a bit further for the Fed to feel pressured to cut rates and support the job market."

"The unemployment rate is near a half-century low and business surveys say labor scarcity is still contributing to inflation, though not as much as last year," Adams writes.

Ongoing claims, reported on a one-week lag, dipped by 0.7% to 1.759 million, hinting at the possibility that it's taking canned workers less time to land new gigs.

Pivoting to the housing market, the sales of pre-owned U.S. homes unexpectedly inch 0.2% higher in May to 4.3 million units at a seasonally adjusted annualized rate, per the National Association of Realtors (NAR).

That's 50,000 more homes SAAR above analyst expectations.

Rising mortgage rates and tightening credit conditions have tilted the market away from the existing home market and toward new builds in recent months, as the inventory of pre-owned units on the market languished below pre-pandemic levels.

But mortgage rates, while still high, have stabilized in recent weeks.

"Mortgage rates heavily influence the direction of home sales," says Lawrence Yun, NAR's chief economist. "Relatively steady rates have led to several consecutive months of consistent home sales."

"Newly constructed homes are selling at a pace reminiscent of pre-pandemic times because of abundant inventory in that sector," Yun adds. "However, existing-home sales activity is down sizably due to the current supply being roughly half the level of 2019."

But in May, existing home inventories actually increased. It would now take three months at the current pace to sell every pre-owned home on the market, up from April's 2.8 month print.

Next, the Conference Board's Leading Economic index (LEI) dropped by 0.7% in May, hitting the consensus bull's eye.

The LEI, an aggregate of ten forward-looking indicators, including jobless claims, building permits, Treasury yield spreads, S&P 500 index performance and others, has now notched 14 consecutive monthly declines.

The index "continues to point to weaker economic activity ahead," says The Conference Board's senior manager of Business Cycle Indicators Justyna Zabinska-La Monica. "Rising interest rates paired with persistent inflation will continue to further dampen economic activity."

But don't tell that to the stock market.

As seen in the graphic below, while the LEI and the S&P 500 tend to track each other, they parted ways in November and have been in divergent paths since, a development which has some analysts wondering whether the year-to-date rally is overplayed.

Finally, in ancient history, the U.S. current account deficit widened in the first quarter by 1.5% to $219.4 billion, according to the Commerce Department.

The measure, which tracks goods and services trade, foreign investment, remittances, aid and other income flows between U.S. and foreign residents, snapped a three-quarter narrowing streak.

WALL STREET SEESAWS ON SECOND DAY OF POWELL TESTIMONY (1020 ET/1420 GMT

Stocks on Wall Street are little changed in early trade on Thursday, the second day of testimony by Fed Chair Jerome Powell, as markets assess a weakening U.S. labor market that could help the pace of inflation slow further.

Cons discr led the S&P 500 sectors higher, while real estate was the biggest decliner. Dow Transports and semiconductors rose, as did growth stocks , while small caps and value fell.

The Fed will be pleased to see the labor market cooling and contributing to overall lower inflation pressures, said Bill Adams, chief economist for Comerica Bank in Dallas.

The labor market in general is pretty solid, with pockets of weakness in some regions and industries, as initial jobless claims trend higher and affirm the message from May's uptick in the unemployment rate, Adams said in a note.

Labor Department data showed 264,000 new claims were filed for jobless benefits on a seasonally adjusted basis in the week ended June 17, unchanged from the prior week's upwardly revised level, which is the highest level of initial claims activity since October 2021.

But with a strong labor market it's hard to see how inflation will get back to the Fed's 2% target, which is an issue which Powell touched in his testimony to the House on Wednesday, said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance in Charlotte, North Carolina.

The stickiest part of inflation is in services, not goods, and one of the largest input costs for services is the cost of labor.

"We would also add that in a full employment economy, where virtually every consumer is employed, there isn't anything holding consumers back from paying higher costs," he said.

Below is a snapshot of early market prices:

(Herbert Lash)

WALL STREET SET TO OPEN LOWER ON A HAWKISH OUTLOOK (0925 ET/1325 GMT>

Futures point to a lower open for the major U.S. indices on Thursday as data showing a softening labor market was offset by expectations of more hawkish comments by Fed Chair Jerome Powell in the wake of further central bank tightening in Europe.

S&P 500 e-minis were down 11.5 points, or 0.26%, with 230,119 contracts changing hands.

Nasdaq 100 e-minis were down 61.25 points, or 0.41%, in volume of 111,948 contracts.

Dow e-minis were down 93 points, or 0.27%, with 38,498 contracts changing hands.

The number of people filing for state unemployment benefits for the first time held steady at a 20-month high last week, and remain elevated for a third straight week.

Powell told lawmakers in Washington on Wednesday that the outlook for further rate increases are "a pretty good guess" of where the central bank is heading if the economy continues in its current direction.

(Herbert Lash)

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