Eventful Week Ahead for S&.P 500: Inflation, Earnings, CPI
NEW YORK (July 10) The US Bureau of Labor Statistics is expected to report that overall inflation fell to about 3% in June, the lowest in two years. Excluding volatile food and energy prices, core consumer price inflation is expected to drop to around 5%, an 18-month low, from 5.3%.
Economists think core inflation could ebb further in the coming months, to between 3.5% and 4%, depending on the price index. The bad news: Getting inflation down further from there, to the Federal Reserve’s 2% target, will prove difficult if the economy keeps chugging along. That could force the Fed to keep monetary policy tight until the labor market weakens.
Interestingly, the recent June jobs report showed signs that the US labor market may be starting to lose some steam (209,000 jobs added in June vs. 306,000 jobs added in May vs. the 2022 average of 399,000 added monthly). The big question is will “wage inflation” start to slow? Most inside the trade are thinking regardless, the Fed is still going to hike rates another quarter-point at this month’s FOMC meeting (July 25-26th). The trade is thinking they may “pause” again at the September 19-20th meeting, but if “wage inflation” and the labor market stays hot they could hike again at the two-day meeting that takes place on the last day in October and the first day of November.
Data to Watch
Investors this week will also be dissecting the June Producer Price Index on Thursday for a more up-to-date read on wholesale inflation trends.
Today’s economic data highlight is Consumer Credit. Investors are also highly anxious to see Q2 2023 earnings results, which “unofficially” begin on Friday with results from big Wall Street banks JPMorgan, Wells Fargo, and Citi, as well as BlackRock.
There are also some notable results due on Thursday, including Cintas, Conagra, Delta Air Lines, Fastenal, and PepsiCo. The more critical releases are coming up over the following two weeks, which will bring results from big tech companies that have dominated market gains so far this year. IBM, Netflix, and Tesla report next Wednesday (7/19), followed by Google-parent Alphabet and Microsoft on 7/25, Facebook-parent Meta on 7/26, Apple and Amazon on on 7/27.
Data from FactSet shows analysts expect S&P 500 companies to report a -7.2% drop in earnings in Q2 compared to last year. However, they still expect things to turn positive in the second half, with projected earnings growth of +0.3% in Q3 and +7.8% in Q4.
For what it’s worth, the tech-heavy Nasdaq is now up more than +30% year-to-date, the S&P 500 is up nearly +15%, while the Dow has risen just +1.7%, highlighting the dominant roll that tech stocks have played. It’s also worth noting that despite strong index gains this year, investors have still been putting more money into bonds than stocks.
A net +$58.8 billion was poured into bond-focused mutual funds and ETFs during Q2, while a net -$44.4 billion was pulled from U.S.-stock mutual funds and ETFs.
FXEmpire
