Investors have been focused on rising inflation for the past several months and weren’t given any reprieve last week after June data showed larger than expected increases in both consumer and producer prices. Prices paid by the consumer as measured by the Consumer Price Index (CPI) increased by 1.3% in June, boosting year-over-year CPI to a 40-year high of 9.1%. Similarly, the Producer Price Index (PPI) for the month showed that the prices charged for end products accelerated to 1.1%. This encouraged speculation over how the Federal Reserve (Fed) would respond at its upcoming meeting.
In contrast to the worries about inflation and the economy’s weakness, June Retail Sales showed a 1.0% increase in activity, highlighting more resilience among consumers than anticipated. Equities rallied after the report and after select Fed officials issued statements which eased some investors’ concerns over the possibility of an outsized rate hike. However, markets are likely to remain choppy.
As markets continue to mull over economic data and the Fed’s upcoming Federal Open Market Committee (FOMC) meeting, companies have begun to report second quarter earnings results. Last week, 7% of companies in the S&P 500 reported, including several large banks, which can help to provide an early indication of financial conditions. At this early stage, the number of companies exceeding earnings and revenue expectations are below 5-year averages. Notably, over the past five years, companies that have exceeded earnings expectations have done so by 8.8%, while the average so far is at 2%. It is far too early to draw conclusions at this point, but we will hear from 73 more companies in the S&P 500 this week as they report results.
A look back
- Global equities finished the week down 1.6% amid rising global recessionary fears, with losses spanning across U.S., international developed, and emerging market stocks.
- The 2/10-year U.S. Treasury yield curve further inverted as the 2-year yield was mostly unchanged and the 10-year yield fell by almost 20 basis points (0.20%).
- Uncertainty around the Eurozone’s oil supply and a confluence of other factors have led to the U.S. dollar’s strengthening relative to the euro. This has resulted in the euro falling to parity (1:1) with the U.S. dollar.
A look ahead
- 14% of the S&P 500 is set to report earnings this week and profit margins will be a focus for investors looking for companies that have been able to successfully navigate surging costs from inflation.
- A slew of housing data will be released providing a glimpse at how the real estate market is faring, which is in focus for the Fed.
- Economic Releases: Building Permits, Housing Starts, Existing Home Sales, Jobless Claims, Leading Index, MBA Mortgage Applications, and S&P Global U.S. Manufacturing & Services.