Investors this week will look ahead to a packed calendar of events, including multiple days of congressional testimony for Federal Reserve Chair Jerome Powell, Tesla’s inaugural battery technology event, and a handful of closely watched corporate earnings results and economic data releases.
Powell heads to Capitol Hill
Just following the Federal Open Market Committee’s (FOMC) September monetary policy meeting, Fed Chair Powell is set to appear before Congress in three separate hearings, alongside Treasury Secretary Steven Mnuchin.
First, Powell and Mnuchin will on Tuesday appear before the House Financial Services Committee to discuss oversight of the Treasury Department’s and Federal Reserve’s pandemic response. They will then appear before the Select Subcommittee on the Coronavirus Crisis on Wednesday, followed by the Senate Committee on Banking, Housing, and Urban Affairs on Thursday.
Questions around the need for fiscal support amid the ongoing coronavirus pandemic will likely be directed to both Powell and Mnuchin. Powell has continuously contended that both fiscal and monetary policy would be needed to ensure a robust economy recovery, while acknowledging that the contents of any further fiscal coronavirus relief legislation fall under Congress’s purview.
“The Fed cannot grant money to particular beneficiaries. We can only create programs or facilities with broad-based eligibility to make loans to solvent entities with the expectation that the loans will be repaid,” Fed Chair Powell said in prepared remarks Wednesday during a press conference. “Direct fiscal support may be needed … The current economic downturn is the most severe in our lifetimes. It will take a while to get back to the levels of economic activity and employment that prevailed at the beginning of this year, and it may take continued support from both monetary and fiscal policy to achieve that.”
On how and when that support might arrive, Powell added later during Wednesday’s question and answer session, “There is an expectation among private forecasters and among FOMC participants that there will be some further fiscal action. And there does seem to be an appetite on the part of all the relevant players to doing something.”
“The question is how much and when,” he added. “No one has any certainty around that. But broadly speaking, if we don’t get that, then there would certainly be downside risks.”
In Congress, lawmakers have been locked in a more than month-long stalemate over passage of another round of virus relief-related fiscal stimulus.
Earlier this month, Senate Democrats blocked a $300 billion Covid-19 relief bill – a so-called “skinny” bill that they argued did not contain adequate support to address the ongoing coronavirus crisis. Democratic lawmakers have pushed for an about $3 trillion deal, though Republican lawmakers have balked at the size of such a deal. Many viewed the Senate’s failure to advance the slimmed-down relief package as the last chance before the presidential election for congressional lawmakers to move a relief bill toward passage.
On monetary policy, the first of this week’s testimonies comes less than a week after the FOMC released its September monetary policy decision, wherein officials unveiled for the first time more details on their outcome-based forward guidance for interest rates, and more specifically, the conditions under which a liftoff from their current near-zero may be warranted. Fed Chair Powell is likely to be questioned on the implementation of this guidance, with the Fed suggesting it would keep rates close to zero “until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”
Tesla Battery Day
On Tuesday, Tesla (TSLA) will host its highly anticipated, inaugural company event focused on unveiling new battery technology.
CEO Elon Musk has teased the event in recent Twitter posts, saying on Sept. 11 that “many exciting things” will be revealed for the first time at the event.
Many exciting things will be unveiled on Battery Day 9/22 ⚡️
— Elon Musk (@elonmusk) September 11, 2020
Questions around battery efficiency, costs, sizing, durability and range will likely take center stage, as investors and potential buyers look for the technology to far surpass capabilities provided by combustion engines, and provide an incentive for customers to pivot toward battery electric vehicles.
Wall Street analysts have largely been constructive on Tesla heading into the event. Piper Sandler late last week raised Tesla’s price target to $515 from $480 and reiterated its Overweight rating, citing the expanded opportunity in Tesla’s energy business unit.
In a similar vein, analyst Dan Ives of Wedbush raised his price target on Tesla to $475 from $380 and reiterated his Neutral rating, calling Battery Day a likely “linchpin” event for the auto-maker.
“We believe Musk & Co. are slated to announce a number of new potential ‘game changing’ battery developments at this event which has become incrementally more important as competition in the EV space continues to ramp both domestically and internationally,” Ives wrote in a note Friday. “The technology innovations around Giga/Fremont remain the key ingredients in Tesla’s success on the battery front and we believe the company is getting closer to announcing the million mile battery at this highly anticipated event.”
“In our opinion this battery technology will be very advanced, potentially last for decades, withstand all types of weather/terrain, and be another major milestone for the Tesla ecosystem,” he added. “In theory this battery will support an electric vehicle for 1 million miles and be a major step forward when competing vs. traditional gasoline powered automotive competitors from both an ROI and environmental perspective. Another linchpin to Tesla’s battery innovations and the Street’s focus of the upcoming Battery Day will be reducing battery production costs on a trajectory to the key $100/kWh threshold as this would give Tesla much more financial flexibility around pricing on current and future EV models with price parity.”
Nike, Costco earnings
While this week’s earnings calendar will be relatively light, a couple closely watched companies are set to report results.
On Tuesday, athletic-wear giant Nike (NKE) is expected to report a year-over-year decline in both top- and bottom-line results, as the company’s business took another quarterly hit from store closures and slower consumer spending during the pandemic. Adjusted earnings are expected to come in at 46 cents per share on revenue of $9.1 billion, representing declines of 47% and 15%, respectively, according to Bloomberg-compiled data.
Telsey Advisory Group analyst Cristina Fernandez said in a note Friday that she expects Nike to report double-digit percentage declines in sales in each of its North America; Europe, Middle East and Africa (EMEA); and Asia Pacific and Latin America (APLA) geographical segments, with temporary store closures and weakened consumer spending trends during the worst points during the pandemic likely to have weighed on results. She expects these drops to be partially offset by extended sales growth in China, which is further along in its coronavirus-related economic recovery.
“By channel, we expect strength in DTC [direct-to-consumer], driven by strong growth in both e-commerce and stores. Recall that on June 25, Nike commented that since its stores reopened in mid-May, it had experienced positive growth across regions, including [double-digit] increases in North America (90% of global stores had opened at the end of June),” Fernandez said.
“We anticipate Nike will strike a positive tone on its earnings call around product innovation, the resumption of sports, the recent realignment of its organizational structure into men’s, women’s, and kids, the rollout of 150-200 digitally-led, small-format stores across NA and EMEA, and its new Consumer Digital Acceleration strategy, with a goal of digital representing 50% of Nike/partner sales vs. the prior goal of 30%,” she added.
Later in the week, warehouse giant Costco (COST) will report quarterly results on Tuesday, and is expected to continue growing as lingering pantry-stocking and dining-at-home trends help boost results.
Costco already pre-reported monthly sales for August earlier this month, reflecting the company’s strong end to the summer. Net sales for the month alone grew 15% to more than $13.5 billion. And for the 16-week fourth quarter ending August 30, Costco posted a 13% increase in net sales to $52.3 billion.
Costco has also been receiving a boost from its e-commerce sales, and may discuss further developments on this front in its earnings call this week. August e-commerce sales surged by 101.6%, as shoppers at both Costco and a plethora of other retailers leaned heavily into making purchases online during the pandemic.
Monday: Chicago Fed National Activity Index, August (1.19 expected, 1.18 in July); Household change in net worth, second quarter (-$655 trillion during first quarter)
Tuesday: Existing home sales, August (6.00 million expected, 5.86 million in July); Richmond Fed Manufacturing Index, September (12 expected, 18 in August)
Wednesday: MBA mortgage applications, week ended September 18 (-2.5% during prior week); FHFA House Price Index, July month on month (0.5% expected, 0.9% in June); Markit US manufacturing PMI, September preliminary (53.5 expected, 53.1 in August); Markit US services PMI, September preliminary (54.5 expected, 55.0 in August); Markit US Composite PMI, September preliminary (54.6 in August)
Thursday: Initial jobless claims, week ended September 19 (845,000 expected, 860,000 during prior week); Continuing claims, week ended September 12 (12.628 million during prior week); New home sales, August (891,000 expected, 901,000 in July); Kansas City Fed Manufacturing Activity Index, September (14 expected, 14 in August)
Friday: Durable goods orders, August preliminary (1.4% expected, 11.4% in July); Durable good excluding transportation orders, August preliminary (1.0% expected, 2.6% in July); Non-defense capital goods orders excluding aircraft, August preliminary (1.0% expected, 1.9% in July); Non-defense capital goods shipments excluding aircraft, August preliminary (2.4% in July)
Friday: Jefferies (JEF) before market open
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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