By Bill Hornbarger, Chief Investment Officer
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Three Things to Watch
- It’s a big week of earnings, which should turn the focus from rising bond yields and the Middle East, at least briefly. Microsoft, Alphabet, Amazon and Meta will all report this week. They are four of the seven stocks that have powered much of the S&P 500’s gain year to date. Less than 20% of the S&P 500 constituents have reported, and of that number, revenue growth has been relatively weak, while positive earnings surprises are running at almost 75%. The markets will be on alert for any positive signs to help stem the recent weakness.
- The European Central Bank (ECB) will announce its interest rate decision on Thursday and is widely expected to hold rates steady. The ECB, like the U.S. Federal Reserve (Fed), has aggressively raised rates to combat inflation and has increased the policy rate 450 basis points since last July. Expect a very similar narrative to U.S. policymakers, centered around “higher for longer.”
- On the data front, the highlight will be the release of the Fed’s favored inflation measure: the Personal Consumption Expenditures (PCE) Price Index. It is expected up 0.3% month over month (MoM) and 3.4% year over year (YoY). Core PCE (excluding food and energy prices) is also expected up 0.3% MoM and 3.7% YoY. Both readings would be a deceleration from last month. The markets will also digest readings on new and pending home sales, personal income and spending, and several regional activity surveys. The data continues to suggest inflation is too high and growth is slowing, but still positive.
Three Things to Know
- The CBOE Volatility Index (referred to as the VIX) closed at its highest level in almost seven months last week. The VIX is often called Wall Street’s “fear index,” and elevated readings are a sign of caution and risk aversion in the equity markets. (Source: Bloomberg)
- Outside of the pandemic years, this year’s federal deficit of $2 trillion is the highest in U.S. history. While tax revenue has increased 28% since the pre-pandemic year 2019, spending has increased 46%. Annual deficits are headed toward $3 trillion over the next few years. (Source: The Tax Foundation)
- If the year ended today, core fixed income (as measured by the Bloomberg Barclays Aggregate Bond Index) would be negative for an unprecedented third consecutive year. (Source: Conway Investment Research)
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.