“We believe stock markets would drop as short-term interest rates spike (in fact, this is already happening for Treasury bills maturing near the expected default date),” notes the Schwab Center for Financial Research. “There would be a drop in the value of the U.S. dollar, and major rating agencies would downgrade the U.S. government’s credit rating. It could also mean a long-term rise in the cost of borrowing for the U.S. government, given the loss of its pristine credit history.”

The tech sector led last week’s gains but could face pressure today based on new developments for some key stocks. Micron (MU) sank over 5% in premarket trading after China said the company’s products failed a cybersecurity review. Facebook owner Meta Platforms (META) dropped more than 1% in premarket trading, after being hit with a record 1.2 billion Euro ($1.3 billion) European Union privacy fine. Apple (AAPL) also is in the news for bearish reasons, having been downgraded by Loop Capital for what the firm says is “downside risk” to revenue for the current quarter.

Retail earnings continue this week with expected results from Lowe’s (LOW), Dick’s Sporting Goods (DKS), Best Buy (BBY), and Dollar Tree (DLTR). The ball gets rolling tomorrow with LOW and DKS both expected before the opening bell. Wednesday’s earnings highlight is one of the handful of stocks responsible for much of the S&P 500’s® (SPX) gains so far this year: Nvidia (NVDA). Last week’s disappointing Foot Locker (FL) earnings hurt other sporting goods shares, so monitor DKS tomorrow to see if this is a wider spread issue for sporting goods companies in general.

Fed Chairman Jerome Powell said Friday that the recent turmoil in the banking sector may have helped tighten credit conditions to the point where growth and inflation could slow. “Our policy rate may not need to rise as much as it would have otherwise to achieve our goals,” Powell told a panel in Washington. “Of course, the extent of that is highly uncertain.” These comments drew a warm greeting on Wall Street and appear to have the futures market pricing in greater chance of a pause than it did before his remarks.

Still, the next Federal Open Market Committee (FOMC) meeting in mid-June remains a moving target as far as rate moves are concerned. Fed speakers have generally continued to sound hawkish lately, with a couple of exceptions, and economic data aren’t looking too bleak. Minutes from that meeting are due out Wednesday afternoon. A host of inflation, wages, and jobs data between now and the next FOMC meeting mean any rate projections now could look dated before long.

Crowded shelves: During the pandemic, when workers were hard to find and consumer demand came under pressure, warehouses and ports got backed up and company supply chains jammed. The situation’s improved, but it’s not over. It’s hard to pick a pair of companies more different than Foot Locker (FL) and Deere (DE), but both have supply chain issues in common, investors learned from their earnings reports Friday. It’s nothing new for FL, which said in late 2021 it expected supply chain issues to last well into 2022. Now it’s almost mid-2023, and FL said in its press release Friday it needs to “take more aggressive markdowns to both drive demand and manage inventory.” The challenges facing all of retail—including inflation and consumer caution—probably caused this to last longer than FL and many other companies had expected. At DE, there’s a different dynamic at play. The company said in its earnings press release that “supply-chain constraints continue to present a challenge,” though it’s seeing improvement. In the case of DE, any constraints likely reflect demand outstripping what DE earlier this year called a “fragile” supply chain.

Earnings scorecard: Though only about half of the major retailers reported through the end of last week, Q1 earnings season is basically in the books for most sectors. So far, 95% of S&P 500 companies have reported, and 78% reported a positive earnings per share surprise while 76% recorded a positive revenue surprise, according to FactSet.  Keep in mind that analysts set a very low bar going in, so the positive surprises didn’t have a steep ladder to climb. And despite so many earnings “beats,” Q1 year-over-year earnings per share (EPS) are still seen falling 2.2%, FactSet said. Additionally, companies issuing negative Q2 guidance outnumber ones issuing positive guidance.

Minute by minute: Before the FOMC meets again, we’ll get a glance this Wednesday afternoon at minutes from this month’s meeting. The FOMC’s decision to raise rates 25 basis points earlier in May was unanimous, and the hawkish tone in recent Fed speeches doesn’t hint at much variance among FOMC officials. If anyone voiced caution about additional rate hikes during discussions at the last meeting, it will be in the minutes and may provide clues into how likely a pause might be in June. One theory is that the Fed might pause in June to better understand the cumulative economic impact of increases to date. It’s almost unprecedented to have rates go up 500 basis points in 14 months, as we just experienced, and rate hikes generally take months to work their way through the economy.