By Bill Hornbarger, Chief Investment Officer
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Three Things to Know
- The Treasury coupon curve inverted again last week with the two-year note ending the week at 3.11%, while the 10-year note yielded 3.08%. The yield curve bears watching as an inverted yield curve is often a precursor of a recession. (Source: Bloomberg)
- The National Bureau of Economic Research is a network of 1,700+ affiliated economists who hold primary appointments at North American colleges and universities. This group is responsible for dating business cycles including recessions that they define as a significant decline in economic activity that is spread across the economy and lasts more than a few months. In their interpretation of this definition, they treat the three criteria — depth, diffusion, and duration –as somewhat interchangeable. Many people mistakenly define a recession as two negative quarters of GDP growth. (Source: National Bureau of Economic Research)
- After peaking in April, the Fed’s balance sheet has begun to shrink (called quantitative tightening) and was down approximately $20 billion last week. (Source: The Financial Times, Federal Reserve)
Three Things to Watch
- Earnings seasons kicks off in earnest this week with reports from household names such as PepsiCo and Delta Airlines followed by reports from the big banks including Wells Fargo, JP Morgan Chase, Citigroup, and U.S. Bancorp. Earnings growth has been revised lower but still expected to be up in excess of 5.5% for the quarter. Just as important will be comments from CEOs on the challenges they face and their outlook for the second half of the year.
- Big week for economic data highlighted by consumer and producer prices (CPI and PPI on Wednesday and Thursday, respectively). Inflation has been top of mind for investors and policymakers, and this week’s readings are expected to remain elevated. Headline CPI is expected to make a new high, up 8.8% while core inflation (excluding food and energy) is expected to continue to moderate slightly. Core CPI is expected up 5.7%, which would be the third consecutive month of slower growth.
- In addition to the inflation reports, investors on Friday will also scrutinize retail sales for signs of weakness.
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.