If you’re keeping score at home – and let’s face it, we’re all keeping score – the Invesco QQQ Trust Series 1 (QQQ) squeaked out another weekly win last week.

However, during the same timeframe, the iShares Russell 2000 ETF (IWM) dropped another 0.8% for the week.

Those two numbers tell you all you need to know about the “bifurcated market.” But there’s more to the market than meets the eye with the QQQ…

Many people think earnings season is over. They’re wrong.

There are still 799 companies set to announce their quarterly earnings results this week…

What? How can there be almost 800 companies reporting results this week CJ?

Simple, we’re done with the headliners, now we’re working our way through what really makes the market work…

But before we go too far down that road, how about we look at the “headliners” …

According to Factset, 92% of the S&P 500 companies have reported their earnings results for the quarter, with 78% of them besting analyst expectations. That’s an impressive number for a market that most, including myself, worried was in dire straits.

So, we’re all good from a bullish perspective, right? Maybe.

I’ve got another key percentage for you in just a minute – but let’s look at the market first…

From a 10,000-foot view, we can see how the market typically fairs in the coming weeks.

According to the calendar, we just finished up Week 19 for the markets. Well, according to my seasonality data, the market is closing out a historically strong period as we enter the next six weeks.

Now, this data is usually good for a general “feel” of where the market is heading based on historical averages. It’s important to remember exactly WHAT the drivers may be that induce seasonal trends. At this point – the beginning of Week 20 – it’s simple.

During this time of year, we’re always heading into a period of slower earnings for the S&P 500 and switching gears to the IWM’s earnings. These lower-profile earnings catch less attention but are just as important, if not more, to the macro outlook. Here’s why…

Small-cap companies are the lifeblood of the economy. Sure, companies like Amazon.com Inc (AMZN), Microsoft Corp (MSFT), and Alphabet Inc (GOOGL) represent the large-cap swath of the economy, but small-cap companies are like the consumer retailer… They make things work.

And this brings me to my focus for the week: the consumer.

To get the full picture, let’s look back at last week for just a minute.

For the first time since 2021, Bank of America Corp’s (BAC) credit-card data showed year-over-year slowing. At the same time that the consumer is slowing their activity, it’s assumed that credit issuers are also tightening available credit in the wake of the recent regional bank scare.

Then, on Friday, the University of Michigan’s Sentiment Index for May (preliminary) came in about four points below the market’s expectations. This decline captures an essence of consumer sentiment that is starting to resemble that of the post-pandemic consumer activity from just months ahead of the late-2022 market meltdown.

So, where does this lead the market as we head into the seasonally weak, small-cap-earnings-driven market?

Remember an important fact as the earnings season shifts to the consumer: 70% of the U.S. Economy is Driven by the Consumer.

Here’s the breakdown of this week’s upcoming earnings. Notice the focus on the Consumer Discretionary and Retail sectors…


Notable among the group of retail-earnings announcements are Walmart Inc (WMT) Home Depot Inc (HD) and Target Corp (TGT). Each of these companies has a different story in the current market narrative.

This will be the “first look” at the consumer side of the economy, and that’s important because the Consumer Discretionary Select Sector SPDR Fund (XLY) and SPDR S&P Retail ETF (XRT) shares are ready to move this week.

Consumer Discretionary ETF (XLY)

This ETF has been trading in the tightest of ranges, practically not moving for the past three months, as companies like Nike Inc (NKE), AMZN, and Starbucks Corp (SBUX) have failed to break out of their longer-term ranges.

More than half of the sector is trading below its respective 50-day moving averages (MA50), which means the ETF is balancing to stay at its current levels. Home Depot, Target, and TJX Companies Inc (TJX) all report earnings this week and should give a good starting look at the state of the retail consumer.

In reality, the heavy flow of reports from the retail and discretionary sectors will come next week, as an avalanche of earnings starts to come in for the group.

For now, watch for a break of $145 or $150 as the signal for the breakout trade in the XLY, then leverage it with an individual name in the group. I’ll give you a few ideas when it happens…

iShares US Home Construction ETF (ITB): We’ll get earnings numbers from Home Depot, which is one of the largest retail names in the ITB.

But perhaps more impactful is later this week, we’ll also get data on new home starts and existing sales. We’ve been seeing an inventory problem in the housing sector that should drive further investment in the homebuilding stocks. Watch for a break above $77 to initiate a new bullish run in the ITB.


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