Market Watch: Fed, Inflation, and Earnings Insights
CPI & PPI Take Center Stage ⭐️
This week we have CPI data & PPI taking center stage with investors hoping it will peel back the curtain of when we can expect a rate cut to be delivered. Last week we had a short trading week due to 4th of July, and this week are back in the saddle with a fresh set of economic data. With job growth slowing this weeks reading on Thursday is crucial in the case that would support a rate cut coming in September. Jerome Powell is also set for his Semiannual testimony before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday will also highlight this weeks economic calendar.
Jumping straight into our corporate side, it is BANKING ER week 🗓️ Friday morning , , & will all report earnings later in the week with and in focus earlier in our trading week. Now lets see how our indexes performed last week:
The S&P500 saw a 2% pop
The Nasdaq Composite had a rally of 3%
The Dow Jones Industrial Average has had some rough weeks but had a 0.5% rise
How The Case For A September Rate Cut Is Being Built 🧱
The June jobs report is in, and while it showed that the US economy added more jobs than expected last month, economists are seeing signs of a slowing labor market. The unemployment rate rose to 4.1%, its highest level since November 2021, and job gains for April and May were revised lower by 111,000. This has led several economists to believe that the Federal Reserve will cut interest rates in September.
The Labor Market Cools Down 🗓️
According to Oxford Economics lead US economist Nancy Vanden Houten, “The June jobs report showed more signs of cooling in the labor market, with job growth including revisions weaker than expected, the unemployment rate rising and earnings growth slowing.” This cooling labor market has led economists to forecast a rate cut in September, with investors pricing in a roughly 75% chance of a cut by the Fed’s September meeting.
Inflation Remains a Key Factor 🤑
While the labor market’s slowing has added to the case for Fed rate cuts, inflation remains a key factor. In May, inflation readings showed prices increased at their slowest pace of 2024, with Powell remarking that those readings “suggest that we are getting back on a disinflationary path.” The June CPI report, set to be released on Thursday, will be a key test of whether this path will continue. Wall Street economists expect headline inflation to rise just 3.1% annually in June, a slowdown from the 3.3% rise seen in May.
Big Banks Set the Stage for Earnings Season ⚡️
Earnings season is upon us, and Financials (XLF) will be in particular focus over the next few weeks. The sector isn’t expected to be a leader in earnings growth this quarter, with analysts forecasting 4.3% year-over-year earnings growth in Q2. Regional banks remain a key concern for the industry, with earnings growth expected to decline by 26% year-over-year.
A High Bar for Q2 Earnings 📈
After climbing out of an earnings recession in 2023, corporates are finally facing a new challenge this reporting season: a high bar to beat. Consensus forecasts are for the S&P 500’s earnings to grow 8.8% against the year prior in the second quarter, according to FactSet. This would mark the highest year-over-year earnings growth for the index since the first quarter of 2022. However, strategists are cautious about how much upside investors can expect if results top Wall Street expectations.
Weekly Calendar 📅
Here’s a look at what’s coming up this week:
Monday: New York Fed 1-year inflation expectations, June (3.17% prior)
Tuesday: NFIB Small Business Optimism, June (89.9 expected, 90.5 prior); Fed Chair Powell testifies before the Senate Banking Committee
Wednesday:
MBA mortgage applications, July 5, (-2.6% prior);
Wholesale inventories month-over-month, May final (0.6% prior);
Fed Chair Powell testifies before the House Financial Services Committee
Thursday:
Consumer Price Index, month-over-month, June (+0.1% expected, +0% previously);
CPI excluding food and energy, month-over-month, June (+0.2% expected, +0.2% previously);
Consumer Price Index, year-over-year, June (+3.1% expected, +3.3% previously);
CPI excluding food and energy, year-over-year, June (+3.4% expected, +3.4% previously);
Real Average Hourly Earnings, year-over-year, June (+0.7% previously);
Real Average Weekly Earnings, year-over-year, June (+0.5% previously);
Initial jobless claims, week ended July 6 (238,000 previously)
Friday:
Producer Price Index, month-over-month, June (+0.1% expected, -0.2% previously);
PPI, year-over-year, June (+2.2% previously);
Core PPI, month-over-month, June (+0.1% expected, 0% previously);
Core PPI, year-over-year, June (+2.3% previously);
University of Michigan consumer sentiment, July preliminary (67 expected, 68.2 previously)
