Stock Market Week Ahead (Sep 21-25): Costco, AutoZone, KB Home and a 5% Ten-Year

TL;DR

• The Fed raised rates a quarter point on Wednesday to 3.75%-4.00%, on a 12-0 vote. The dot plotThe dot plot is a chart the Fed publishes four times a year showing where each of its 19 policymakers expects interest rates to be at the end of this year and the next few. Each dot is one anonymous official. Markets watch the median dot, because it shows whether the committee as a whole still expects to raise or cut. pencilled in one more hike this year. Stocks ended the week close to flat, with the Dow down 1.7% and the Nasdaq up 0.7%.
• This week has no Fed meeting, no CPI and no jobs report. The 10-year Treasury yieldThe 10-year Treasury yield is the interest rate the US government pays to borrow for ten years. Mortgage rates and most long-term borrowing costs are set off it, which is why a move in this one number reaches housing, corporate borrowing and stock valuations. sits near 5%, its highest since 2007, and the 30-year mortgage is at 6.95%.
• Tuesday, after the close: KB Home, the first builder to report earnings since the mortgage rate jumped.
• Wednesday, 9:45am ET: S&P Global releases its preliminary September PMIA PMI (Purchasing Managers’ Index) is a monthly survey of companies asking whether orders, output, hiring and prices rose or fell. A reading above 50 means more firms saw growth than decline. The flash version comes out about a week before the month ends, which makes it the first broad read on the month. surveys for the US economy.
• Thursday, 10:00am ET: August new home salesNew home sales is the monthly government count of newly built houses sold, stated as an annual rate. It is the cleanest read on builder demand, because a new home is only bought when someone can afford the mortgage on it that month.. After the close: Costco earnings, the week's only big name. Thursday is also SpaceX's day-105 lock-upAfter a company lists, insiders and early investors are barred from selling their shares for a set period, the lock-up. When it ends those shares can be sold for the first time, so a large release can pressure the stock., about 319 million more shares.
• Friday, 8:30am ET: August durable goodsDurable goods orders count new orders for things built to last three years or more: machinery, aircraft, vehicles, appliances. Companies place these orders when they expect demand and can afford to borrow, so the number is a monthly read on business investment. orders.

The Fed Raised Rates and Markets Went Up, Then Warsh Spoke

The hike was expected and priced in. A quarter point to 3.75%-4.00%, voted 12-0 and already priced above 90% by Tuesday. Stocks rose into the statement and held their gains for about half an hour.

Then Warsh started speaking. "This summer's inflation readings do not tell me that underlying trends have meaningfully improved." The S&P 500 immediately gave back the morning's gains and closed down 0.45%. The Dow lost 1.2%. The Fed hub has the full timeline, the dot plot table and the close.

The projections didn't help. June's median had the Fed at 3.8% by year-end, which Wednesday's hike satisfied. September's median changed that and now says 4.1%. That is one more quarter point, at either the October 28 or the December 9 meeting. The 2027 line moved from 3.6% to 4.1%, so the rate cut June's projections had planned for next year is gone. The dot plot preview has what changed from June.

The bond market behaved as you'd expect, given bonds compete with interest rates from banks: a higher Fed rate means less demand for bonds, so the government must pay higher rates to sell them. The 10-year yield touched 5.02% on Tuesday, its highest since 2007, and was back above 5% at Friday's close.

The other two central banks went as expected. The Bank of England held at 3.75% on Thursday, 6-3, with three members voting for a rise. The Bank of Japan raised to 1.25% overnight into Friday, 7-2, its highest rate since 1995.

Stocks ended the week close to where they started it. The S&P 500 closed Friday's regular session at 7,650.50, up 0.17% on the day. The Nasdaq Composite finished at 26,522.55 and the Dow at 51,682.64, per Yahoo Finance. Over the five sessions the Dow lost 1.7% and the Nasdaq gained 0.7%. What a bear steepener does to stocks explains why the two indexes split, and the sector heatmap has the detail.

Last week, it was all about the hike and projections. This week the question is what a 5% ten-year does to housing, the sector most sensitive to it. That is why KB Home and new home sales are the reports to watch.

The Board

Two housing reports, one Costco report, and a 10-year yield near 5%.

KB Home Tuesday, New Home Sales Thursday

Mortgage rates follow the 10-year. The 30-year fixed mortgage averaged 6.95% in the week to September 17, per Freddie Mac. That is up from 6.76% a week earlier and 6.26% a year ago. Nineteen basis pointsA basis point is one hundredth of a percentage point, so 25 basis points is 0.25%. Rates are quoted this way because the moves are small and "a quarter point" can be misread as a quarter of the rate itself. in seven days is a big move for a mortgage.

Builders were already struggling before that move. New-home sales fell 10.5% in July to a 607,000 annual rate, and unsold inventory reached 9.6 months of supply, per the Census Bureau and HUD. Then Lennar reported on Wednesday, hours after the Fed. Earnings of $1.19 a share against $2.29 a year ago and the $1.30 analysts wanted. Orders down 9%. Incentives offered to attract buyers at around 12% of the sale price. The full-year delivery target cut for the second time, to 80,000-81,000 homes, as last week's edition recorded. The stock fell about 4% on Thursday morning, per Quiver Quantitative, an intraday read rather than the close.

KB Home is next, after Tuesday's close. Analysts want $0.90 EPS on about $1.3 billion revenue, against about $1.6 billion a year ago, per Zacks via Yahoo Finance. Revenue falls 20% and earnings fall by nearly half. The company already guided 2,600-2,800 deliveries, so the quarter itself should hold few surprises. The full-year guideGuidance is the forecast a company gives for its own coming results, such as revenue, profit or homes delivered. It is the only bar management is on the hook for, and a cut to it usually moves a stock more than the quarter just reported. is what will move the stock, and options price a 10% move.

Thursday's new home sales are the other half of housing this week. August is the first month measured with the mortgage rate close to 7%. July's 607,000 sales is the number to beat.

My read: if KB Home holds its guide and August sales beat July, that means incentives are absorbing most of the rate move. If both come in soft, the Fed is tightening into a housing market that's already rolling over. I lean toward the second, just based on Lennar's earnings last week. And the rate has gone up since then.

Costco: Options Price a 3.6% Move, the Stock Usually Moves 1.4%

Costco reports Thursday after the close. Analysts want about $6.55 a share on $94.9 billion of revenue, up roughly 12% and 10% on last year's $5.87 and $86.16 billion. The company has matched or beaten expectations for the last five quarters.

Options price a move of about 3.6%. Over its last eight reports the stock has averaged a 1.4% move, per TipRanks. The market is expecting more than double what Costco usually does.

There is a reason. Costco reports sales monthly, so revenue is rarely a surprise, and most of its profit is membership fees. What remains is margin. Oppenheimer thinks core earnings could land below consensus once tariff refunds are stripped out.

Myself, I think paying 3.6% for a stock that moves 1.4% is expensive. I wouldn't buy options in either direction. This view gets graded in the track record so the failures and successes are public.

SpaceX: The Fourth Lock-Up Tranche Is Thursday

Thursday is SpaceX's day-105 lock-up, around 319 million more shares becoming sellable. It is the fourth trancheA tranche is one scheduled slice of a lock-up release. Rather than freeing every insider share at once, an IPO prospectus can release them in steps on fixed day counts, so each tranche is a date when a set number of shares becomes sellable. since the June IPO. The first three all did the same thing: a dip on the day the shares became eligible, then a recovery once they actually traded. August 6 actually rose 6% on the day. August 20 fell about 6.5%, then bounced. September 9 fell 3.9% and recovered within two sessions.

The stock has been steady into this one. SPCX traded around $153 on Friday, per Investing.com, back above where it sat before the day-90 tranche. The options market priced a 7.2% move for the week of the unlock, which is larger than either of the last two lock-up days delivered.

My read: three uneventful unlocks have trained the market, and I expect a modest dip and a recovery again. The tranche that might break the pattern comes later. It is the 28% release tied to Q3 earnings, roughly four times any step so far, and it arrives with an earnings print attached. The lock-up hub keeps track of every date and share count, and the lock-up calendar has the full schedule.

Monday, September 21

No US data of note. The Chicago Fed National Activity IndexThe regional Fed banks each survey businesses in their district every month about orders, shipments, hiring and prices. None moves markets on its own; together they are an early read on the national ISM and PMI numbers that follow. lands at 8:30am ET, and Chicago Fed President Goolsbee speaks in London at 6:30am ET, per the Chicago Fed.

Bloom Energy, Illumina and Everpure trade as S&P 500 members from the open. Molson Coors, The Trade Desk and Builders FirstSource are out, per S&P Dow Jones Indices. Index funds did the buying and selling for the rebalanceAn index rebalance is the scheduled day when companies are added to or dropped from an index like the S&P 500. Funds that track the index must buy the new names and sell the old ones, usually in the closing auction, which moves a lot of stock with no view on any of the businesses. in Friday's closing auction, so Monday itself should be quiet.

Tuesday, September 22

Earnings before the open: AutoZone (call 10:00am ET, implied moveThe implied move is how far the options market expects a stock to move on an event, up or down, worked out from options prices. A 12% implied move on a $50 stock means traders are paying for a swing to roughly $44 or $56. It is what is already priced in, so the stock has to beat it for an options bet to pay. 9.6%), Thor Industries (11.0%), MillerKnoll. Analysts expect AutoZone to earn $54.22 a share on $6.71 billion of revenue, per the consensus of 21, against $48.71 on $6.24 billion a year ago. My read is that most of that gap comes from AutoZone buying back its own shares, and the buyback figure in the release will confirm or disprove it.

10:00am ET: Richmond Fed survey. 10:20am: Fed Vice Chair Jefferson speaks on Treasury market functioning, per the Fed's calendar. 1:00pm: 2-year Treasury auctionA Treasury auction is the government selling new bonds to raise money. The yield it has to offer to sell them all shows what investors demand to lend to the US that day, and a weak auction can push yields up across the bond market..

Earnings after the close: KB Home (implied 10.1%), Worthington Enterprises (10.8%).

Wednesday, September 23

9:45am ET: September flash PMIs from S&P Global, the first broad read on the month. August's flash composite came in at 56.0, the highest reading in 52 months, per S&P Global's August release, and prices cooled in the same survey. Another month like that would weaken the case for the extra rate rise the Fed's projections now show.

Earnings before the open: Cintas (implied 4.6%), General Mills (8.8%), Paychex (7.6%), Cracker Barrel (15.5%).

11:05am ET: Fed Governor Barr speaks on housing affordability (10:05am Central, per the Fed's calendar). 1:00pm: 5-year Treasury auction.

Earnings after the close: Stitch Fix (22.9%), H.B. Fuller. The earnings calendar has the confirmed dates for the rest of the month.

Thursday, September 24

8:30am ET: weekly jobless claimsWeekly jobless claims count how many people filed for unemployment benefits, published every Thursday. They are the fastest official read on layoffs: monthly reports describe last month, claims describe last week. and the Q2 current accountThe current account is the quarterly tally of what the US earned from the rest of the world against what it paid out, in trade, investment income and transfers. A deficit means the country borrowed from abroad to cover the gap.. 10:00am: August new home sales. 11:00am: Kansas City Fed survey.

Before the open: Darden Restaurants (implied 7.6%), TD Synnex (9.2%), BlackBerry (12.8%).

SpaceX's day-105 lock-up: about 319 million more shares become sellable. More above, and on the lock-up calendar.

After the close: Costco (implied about 3.6%).

Friday, September 25

8:30am ET: August durable goods orders. 10:00am: the final September Michigan surveyThe University of Michigan survey asks households how they feel about their finances and the economy. Markets watch its inflation-expectations question most, because people who expect higher prices tend to spend and bargain as if they are coming., with its inflation expectations. 1:00pm: Baker Hughes rig countThe Baker Hughes rig count is a weekly tally of drilling rigs at work in the US. More rigs means producers expect oil and gas prices to hold up; fewer means they are cutting back, which shows up in supply months later..

No earnings of note.

The One-Line Read

The 10-year yield is near 5% and the 30-year mortgage is 6.95%. KB Home on Tuesday and new home sales on Thursday show what that rate is doing to housing. Costco on Thursday is the only large company reporting. The day's times are on /today.