Ratings Fallout, Housing and Other Key Things to Watch this Week
Stock Market This Week: Five Themes To Watch
The stock market faces significant uncertainty heading into this week following Moody's unexpected downgrade of U.S. sovereign debt late Friday, which sent futures tumbling and threatens to overshadow other market catalysts. The S&P 500 ($SPX) (SPY) had shown resilience throughout last week, but this ratings action creates a potentially volatile environment as traders assess implications for Treasury yields, the dollar, and broader market sentiment while navigating a full calendar of economic releases and earnings reports.
Here are 5 things to watch this week in the Market.
Sovereign Debt Rating Fallout
Market reaction to Moody's downgrade of U.S. government debt will likely dominate trading early in the week, with potential ripple effects across asset classes and geographies. This marks the first major ratings action on U.S. sovereign debt since 2011, raising concerns about debt sustainability and fiscal policy direction. Treasury yields, which influence everything from mortgage rates to corporate borrowing costs, could see significant volatility as international investors reassess risk premiums for U.S. government securities. Financial stocks may experience heightened sensitivity to these developments, while defensive sectors could benefit from flight-to-safety positioning. The downgrade's timing creates additional complexity as investors simultaneously process this news alongside upcoming economic data and earnings reports. With U.S. debt serving as the world's primary risk-free benchmark, the market's adjustment process could influence trading dynamics throughout the week and potentially beyond.
Housing Market Momentum
This week brings a comprehensive view of the housing market with Thursday's Existing Home Sales report at 10am followed by Friday's New Home Sales data at 10am. These back-to-back releases will provide crucial insights into residential real estate activity across both new construction and previously owned properties, particularly important as investors gauge whether rising Treasury yields following the ratings downgrade could further pressure mortgage rates. The housing sector's importance extends beyond homebuilders to mortgage lenders, home improvement retailers, and consumer durables manufacturers. Home Depot (HD) reports Tuesday, offering additional perspective on home improvement spending trends and consumer confidence in property investments. Together, these data points will help assess whether housing, historically a leading indicator of economic direction, is signaling continued resilience or developing weakness amid evolving financial conditions.
Retail Sector Health
A cluster of important retail earnings arrives this week, headlined by Home Depot (HD) on Tuesday, followed by TJX Companies (TJX) and Target (TGT) on Wednesday. These reports will provide valuable insights into consumer spending patterns across different price points and merchandise categories at a time when market volatility could impact consumer confidence. Management commentary on forward guidance will be closely scrutinized for any acknowledgment of changing customer behavior in response to financial market turbulence or concerns about economic stability. Retail stocks often serve as important barometers of economic sentiment, making these earnings particularly significant following major financial news. With consumption representing approximately 70% of economic activity, these reports could either reinforce or counterbalance concerns stemming from the sovereign rating action.
Economic Activity Indicators
Thursday brings a comprehensive view of economic momentum with Initial Jobless Claims at 8:30am followed by Manufacturing and Services PMI readings at 9:45am. These reports will help investors assess whether the U.S. economy maintains sufficient underlying strength to weather potential financial market turbulence resulting from the ratings downgrade. The PMI components on new orders, employment, and prices will provide valuable forward-looking indicators about business confidence and inflation pressures. Companies reporting this week, including Palo Alto Networks (PANW), Snowflake (SNOW), and Medtronic (MDT), will offer additional perspective through their results and guidance on whether business spending remains resilient despite macroeconomic uncertainties. Together, these indicators will help determine whether economic fundamentals can overcome financial market concerns.
Energy Market Dynamics
Wednesday's Crude Oil Inventories report at 10:30am will provide important insights into energy supply-demand dynamics amid potential dollar volatility following the ratings action. Oil prices, typically denominated in dollars, often show inverse relationships to dollar strength, creating potential for significant energy price movements as currency markets digest the sovereign debt news. Additionally, oil prices serve as important inputs for inflation expectations, which influence Treasury yields and Fed policy expectations. Energy stocks have shown relative strength during recent market volatility, and this data could influence whether that outperformance continues in a potentially more complex macro environment. Beyond direct energy sector implications, the report also offers perspective on transportation activity and industrial demand, providing broader economic signals at a time when markets are particularly sensitive to growth indicators.
Best of luck this week and don't forget to check out my daily options article.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Globe and Mail
22 minutes ago
- Globe and Mail
This $4.6-billion money manager used the April downturn to buy Canadian dividend stocks on sale
While the U.S.-led trade war hasn't been as catastrophic for Canada as originally feared, at least so far, money manager Scott Lysakowski is still cautious about the impact the ongoing uncertainty is having on the economy. 'It hasn't really materialized in the numbers yet,' says Mr. Lysakowski, managing director and a senior portfolio manager at RBC Global Asset Management in Vancouver. He's also head of the Phillips, Hager & North (PH&N) Canadian equity team. While he's 'not overly defensive' right now, Mr. Lysakowski says he's 'mindful' of the pullback in business spending and impact on jobs that could weigh on economic growth in the coming months. 'And of course, when you've had the markets recover like they have, the risk-reward today is a lot less compelling than it was during the depths of the market volatility in April,' he says. Mr. Lysakowski, who manages the $4.6-billion PH&N Dividend Income Fund, used the April downturn to buy companies he felt were on sale, including Canadian dividend-paying stocks. The fund returned 16.7 per cent over the past 12 months, as of April 30, and has a three- and five-year annualized return of 8.5 per cent and 15.1 per cent, respectively. The performance is based on total returns, net of fees. The Globe spoke with Mr. Lysakowski recently about what he's been buying and selling. Name three stocks you own today and why. Arc Resources Ltd. ARX-T, the mid-sized natural gas producer, is a long-time core holding and a stock we've been adding to recently. It has assets in some of the best acreage in the Montney region of northeast B.C. and northwest Alberta. Arc is a low-cost producer that's disciplined with its production growth and capital allocation. And despite natural gas being a volatile commodity, it has done a good job of maintaining and growing its cash flow. Its strong balance sheet has allowed it to acquire more assets to help it build inventory for long-term growth. The company has also sustained and grown its dividend over time, which is an important feature for us. Canadian National Railway Co. CNR-T and Canadian Pacific Kansas City Ltd. CP-T are both core holdings and stocks we added to in April. Before the tariff threats, railroad stocks faced freight recessions, which are characterized by declining volumes, pricing pressure and operational challenges such as labour unrest and wildfires. We're about three years into this freight recession, a follow-on from the pandemic, which meant lagging performance. We believe railway stocks are high-quality growth cyclicals that will be impacted by economic activity but will survive. CP has been the clear outperformer in recent years and continues to drive synergies thanks to its merger with Kansas City Southern, and we expect those results to continue. There's a particular opportunity for CN to make up some lost ground. CN has lagged its peers in North America with declining volumes and operational outages. The company is focused on returning to its historical growth trend in terms of volumes, getting some of these operational issues behind it and focusing on productivity. We have been adding more CN than CP recently because we see more growth potential ahead. Telus Corp. T-T is a stock we've owned for several years and bought more of recently. All telecoms have faced several headwinds, including increased wireless competition, decreasing population growth and rising interest rates. All of the telecom stocks have underperformed the market significantly, but Telus has done slightly better than its peers. It has delivered slightly better than average revenue and EBITDA [earnings before interest, taxes, depreciation and amortization] growth. Its capital spending has peaked and is now being reduced, which enabled it to recently increase its dividend, which is quite different than some of its peers. Telus has also signalled to the market that it aims to deliver some dividend growth over the next few years. Name a stock you sold recently. Northland Power Inc. NPI-T, the offshore wind generation company, is a stock we recently exited after owning it since the fall of 2023. Investor sentiment toward renewable stocks has soured lately with the new U.S. administration removing some of the tax incentives in the industry. That led us to reduce our exposure to that group as a whole, but specifically to Northland Power. The company is developing two large-scale offshore wind projects. It has a reasonable track record of delivering projects like this and does its best to de-risk them, but as it moves through the construction phase, it will experience an elevated payout ratio – the dividends it pays out as a percentage of cash flow will be high. The market is concerned about the payout ratio and the potential risk of a dividend cut. So, as a dividend manager focused on dividend growth, I don't want to be invested in companies that are cutting their dividends. We decided to step aside during this period of uncertainty. This interview has been edited and condensed.
CBC
an hour ago
- CBC
The rising cost of beauty products
CBC's Sannah Choi breaks down why we're seeing a rising cost in cosmetics and personal care products in the face of U.S. tariffs.
Globe and Mail
an hour ago
- Globe and Mail
Should You Invest $1,000 in ExxonMobil Today?
ExxonMobil (NYSE: XOM) is an undisputed leader in the oil industry. With a roughly $450 billion market cap, it's the world's biggest international oil company (IOC) -- that is, not state-owned. It leads IOCs in nearly every metric that matters, including earnings, cash flow, and returns. While ExxonMobil is a leader in today's energy industry, its ability to maintain its leadership will be a crucial factor in fueling its ability to grow shareholder value in the future. Here's a look at whether ExxonMobil is worth investing $1,000 into today. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » The best-run oil company by far ExxonMobil delivered industry-leading performance during the first quarter. Even more impressive is that the oil company didn't just beat its peers; it absolutely crushed them. For example, the company led all IOCs by producing $7.7 billion in earnings and $13 billion in cash flow from operations in the first quarter. Here's a look at how that compared with its peers in the period: XOM Net Income (Quarterly) data by YCharts One factor driving Exxon's much higher earnings is its industry-leading structural cost savings initiative. Since launching that program in 2019, Exxon has delivered a cumulative $12.7 billion in structural cost savings. That's more than all other IOCs combined. Exxon is on track to deliver a total of $18 billion in structural cost savings by 2030. That's more than most of its peers aim to deliver. For example, Chevron unveiled a plan last year to achieve $2 billion to $3 billion of structural cost savings by the end of next year. Exxon also leads its peers in several other crucial categories. It has a 7% net debt-to-capital ratio, and 12% after stripping out its massive cash balance, which leads all IOCs. That's well below the average leverage ratio of its peer group and for a company in the S&P 500, which is closer to 20%. The oil giant also leads in delivering value for shareholders. It returned $9.1 billion of cash to investors in the first quarter, including an industry-leading $4.8 billion of share repurchases. Exxon also leads the oil sector in dividend growth. It has increased its dividend payment for 42 straight years, a feat only 5% of companies in the S&P 500 have achieved. Building on its leadership Exxon aspires to build an even better energy company in the coming years. By 2030, it aims to deliver the potential for $20 billion in additional annual earnings and $30 billion in cash flow, assuming a roughly $65 price for Brent oil, the global benchmark, which is right around the current level. That's a massive step up from the $33.7 billion of earnings and $55 billion in cash flow from operations it delivered last year, which was its third-best year in a decade, even though commodity prices were around their historical averages. This forecast implies that the company will deliver compound annual growth rates of 10% for its earnings and 8% for its cash flow over the next several years. A major factor fueling that growth is Exxon's plan to invest about $140 billion into major capital projects, including up to $30 billion of lower carbon investment opportunities, and its Permian Basin development program through 2030. It's pouring this capital into its lowest-cost and highest-margin assets. The company expects this capital to generate robust returns of more than 30% over the life of the investment. On top of that, the company plans to continue executing its structural cost savings program. Exxon anticipates those investments will generate about $165 billion in surplus cash over that period. That will give the oil giant more money to return to shareholders through a growing dividend and a meaningful share repurchase program. Assuming reasonable market conditions, the company plans to repurchase $20 billion of its shares this year and another $20 billion next year. The company's plan will also put it in a stronger position to weather lower oil prices in the future. By stripping out additional structural costs and investing in its lowest-cost assets, Exxon will steadily lower its breakeven level, enhancing its ability to produce strong earnings and cash flow at lower oil prices. A worthwhile investment ExxonMobil is the best-run company in the oil patch. It has a long history of wisely investing capital to grow shareholder value. The company currently plans to deliver 10% compound annual earnings growth through 2030, assuming a relatively conservative oil price point. Add that to its nearly 4%-yielding dividend, and Exxon has robust total return potential. While an unexpected plunge in oil prices could negatively affect Exxon's plan, it's putting itself in a better position to thrive at lower prices in the future. That makes Exxon look like a great place to invest $1,000 right now for those seeking a lower-risk way to invest in the oil sector. Should you invest $1,000 in ExxonMobil right now? Before you buy stock in ExxonMobil, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and ExxonMobil wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $668,538!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $869,841!* Now, it's worth noting Stock Advisor 's total average return is789% — a market-crushing outperformance compared to172%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of June 2, 2025
