By Bill Hornbarger, Chief Investment Officer
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Three Things to Watch
This will be another busy week full of earnings, top tier economic data and Fed speakers.
- Last week’s price data from the personal consumption expenditures report hit the highest level in more than 40 years, and the market and the Fed remain laser focused on inflation. Fed speakers will be through the pre-Fed meeting blackout and the markets are anxious to hear what the Fed is thinking after last week’s 75 basis points (bp) increase. Speeches are scheduled for Federal Reserve Bank presidents Charles Evans, James Bullard, and Loretta Mester this week. Fed Chairman Jerome Powell has indicated additional rate increases are data dependent while other Fed speakers have been more hawkish and indicated more are certain to come.
- Top tier economic reports out this week include the ISM surveys (manufacturing and service) on Monday and Wednesday respectively, durable goods and factory orders on Wednesday, and the July employment report on Friday. The new orders piece of the ISM manufacturing survey slipped below 50 last month (indicating contraction) and is forecast to stay there in July. Friday’s payrolls are forecasted to be up 260,000 and the unemployment rate to remain steady at 3.6%. So far the labor market has remained strong despite the economic slowdown.
- Another huge week of earnings with 148 S&P companies reporting earnings including Starbucks, Eli Lilly, Caterpillar, Lyft, BP, and Berkshire Hathaway. Of the 277 S&P constituents that have reported, 73% have posted positive earning surprises.
Three Things to Know
- The average price of a home in the U.S. has hit a new record high for 40 straight months. (Source: The Kobeissi Letter)
- The Fed has raised rates four times this year with both June and July bringing 75 bps increases. After peaking on June 14th at 3.48%, the 10-year Treasury yield has declined to 2.65%. (Source: Bloomberg)
- The Taylor Rule is a formula tying a central bank’s policy rate to inflation and economic growth. Developed by economist John Taylor in 1993, it assumes an equilibrium federal funds rate 2% above the annual inflation rate. The Taylor Rule adjusts the equilibrium rate based on divergence in inflation and real GDP growth from the central bank’s targets. The current Taylor Rule estimate for the target Fed funds rate is 9.6%. (Source: Investopedia, Bloomberg)
The above information reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security mentioned.