Traders on the floor of the NYSE, June 29, 2022.
Source: NYSE
Consumer inflation data and the start of the second quarter earnings season could be two catalysts that could lead to volatility in the markets in the coming week.
PepsiCo’s Earnings Week is Tuesday’s first major report, and Delta Air Lines RExports on Wednesday. JPMorgan Chase And Morgan Stanley start bank earnings season on Thursday, and Wells Fargo, Citigroup And PNC FinancialFollow on Fridays, among others.
A slew of inflation reports can influence the markets, as they help determine how aggressive the Federal Reserve will have to be in its fight to quell inflation.
The June consumer price index turned bigger on Wednesday, and economists expect it to be warmer than May’s 8.6% year-over-year pace. It is also the report that can move the markets the most.
“The headline is expected to be higher. It is mostly due to energy,” said Peter Bokvar, chief investment officer at Blakely Advisory Group. He said core inflation could be subdued except in food and energy. West Texas Intermediate Crude futures were as high as $122 a barrel in June, but fell back in July and were below $105 a barrel on Friday.
“The question is to what extent the reduction in goods prices is going to be offset by rising services prices, primarily driven by rents,” Boucher said. “There’s still a lot of catchup room to reverse rents in government statistics.”
Thursday is also the June Producer Price Index, and investors are watching Friday’s Michigan Consumer Sentiment Report for July closely. That report contains consumer expectations about future inflation, a key metric looked at by the Federal Reserve. June retail sales, another measure of the consumer, are also released on Friday.
“The PPI is the seed for the CPI … and it can handle another 10%,” Bookover said.
The new inflation figures come after Friday’s strong employment report. In June,They added 372,000 jobs to the economy, About 120,000 more than expected. Strategists say the report has reinforced expectations that the Federal Reserve will increase by another 75 basis points later this month. One basis point is one hundredth of a percentage point.
Bokvar said, “That was enough for them to continue on the path they’ve chosen. It’s not until you start seeing unemployment rising on a monthly basis that I believe the Fed starts to bend its knees.” will give.”
A key question for markets is when inflation will peak, as it has already continued to flare up longer than the Fed initially anticipated.
“I think a risk to the markets is the fact that inflation may not peak,” said Michael Aron, chief investment strategist at State Street Global Advisors. “I still believe that the markets are expecting at least, if not expecting, inflation to subside.”
The second quarter earnings season begins as soon as investors see the pace of inflation. If analysts are forced to cut year’s balance estimates, corporate profits could be the source of some market turbulence, as many expect.
“Roads haven’t really changed estimates. Revenue growth has ticked down. Margins are shrinking. Analysts are leaving their estimates unchanged,” Bokvar said. “If there’s going to be an adjustment, it’s time.”
According to I/B/E/S data from Refinitiv, second-quarter earnings for the S&P 500 are expected to increase by 5.7%. Estimates for the third and fourth quarters are going down a bit, but are still at 10.9% and 10.5%, respectively.
“I think the market is poised for a challenging earnings quarter, so how much of that volatility will remain unclear,” Aaron said. He said companies will keep on beating but maybe not as much. “I think they will lower their guidance. Why not? It just makes it easier to beat the road. I think earnings season will be disappointing. It will be interesting to see how the market reacts.”
Stocks were higher in the past week, with S&P 500 rose 1.9% to 3,899. Nasdaq Gained 4.5% for the week.
The worst performing major sectors for the week were utilities and energy. The S&P consumer discretionary sector, which benefits from lower oil prices, jumped more than 4.5% in the week.
10 year treasury note was yielding around 3.07% on Friday, but 2 year note yield This past week crossed 10 years for the third time since the end of March. result is one the so-called inverse yield curve, Which sometimes indicates a recession. The 2-year yield was 3.11% on Friday afternoon.
week ahead calendar
monday
1:00 PM $43 Billion 3-Year Treasury Note Auction
2:00 pm New York Fed President John Williams
Tuesday
Earnings: PepsiCo
6:00 am NFIB survey
12:30 PM Richmond Fed Chairman Thomas Barkin
1:00 PM $33 Billion 10-Year Treasury Note Auction
Wednesday
revenue, Delta Airlines, Tie
8:30 AM June CPI
$19 billion 30-year bond auction at 1:00 pm
Federal Budget at 2:00 PM
Beige Book at 2:00 pm
Thursday
Earnings: JPMorgan Chase, First Republic Bank, conagra, Morgan Stanley, american outdoor brand, ribbon, Taiwan Semiconductor
8:30 AM Weekly Initial Jobless Claims
8:30am June PPI
11:00 am Fed Governor Christopher Waller
Friday
Earnings: Wells Fargo, Citigroup, PNC Financial, Bank of New York Mellon, US Bancorp, state Street, unitedhealth
8:30am June retail sale
8:30 AM Import Price
8:30 a.m. Empire State Manufacturing
8:45 a.m. Atlanta Fed President Rafael Bostik
9:15 am Industrial Production
10:00 AM July Consumer Sentiment
10:00 AM Business List