Inflation and Earnings to Build the Next Big Move in S&P 500

The PCE Prices Index this morning is expected to show June inflation slowing to a headline rate of +3.0% year-over-year from +3.8% previously. The Fed’s preferred “core” rate, which strips out food and energy, is seen slowing to +4.2% from +4.6%.

Inflation

Today’s results may not have much impact however on investor sentiment as upcoming data for July and especially August will have a greater influence on the Federal Reserve’s next policy decision which doesn’t happen until September 19-20.

The key reports to watch between now and then include the July Consumer Price Index (CPI) on August 10, July PCE Prices on August 31, and August CPI on September 13. Consumer Sentiment is also due out today with economists expecting it to hold steady. Despite the ongoing inflationary environment, economic data has so far not raised any major red flags about the health of US consumer, though there are clear signs that spending has slowed to some extent.

Economy

The Commerce Department’s Gross Domestic Product (GDP) released yesterday showed consumer spending slipped to an annual rate of +1.6% in Q2 from +4.2% in Q1. Still, even with that pullback the US economy grew +2.4% in Q2, up from +2.0% the previous quarter and better than the +1.5% many on Wall Street were expecting.

Interestingly, the slowdown in consumer spending is being offset by increased spending by both the government and businesses. Government spending is being fueled by the Biden administration’s infrastructure funding, which has allocated some +$225 billion toward 35,000 projects so far. Business investments in infrastructure projects (manufacturing plants, transportation equipment, etc.) lifted Q2 GDP by nearly +1%.

Next week will bring critical updates on the US job market with the Job Openings and Labor Turnover Survey on Tuesday, ADP’s private payroll report on Wednesday, and the Labor Departments official July Employment Report on Friday.

Earnings

On the earnings front, investors today are anxious to see Procter & Gamble’s results which should also provide some key insights into the health of US consumers. Procter & Gamble is one of the world’s largest consumer goods companies with a wide range of price categories, meaning the company is able to easily recognize if consumers are “downgrading” to lower priced brands.

Investors are also interested to learn if the company‘s sales growth slowed significantly following additional price hikes last quarter. Astra Zeneca, Chevron, ColgatePalmolive, Exxon Mobil, and T. Rowe Price also report today. The earnings calendar next week will again be packed with the top highlights arguably being Apple and Amazon results on Thursday.

Other key results will come from Arista Networks, AvalonBay, and Diamondback Energy on Monday; Advanced Micro Devices, AIG, Altria, BP, Caterpillar, Electronic Arts, Marathon Petroleum, Marriott International, Merck & Co., Pfizer, Pioneer Natural Resources, Starbucks, and Uber on Tuesday; Bunge, Clorox, CVS, DoorDash, Fortis, Humana, Johnson Controls, Kraft Heinz, MetLife, MGM Resorts, Novo Nordisk, Occidental Petroleum, Phillips 66, Qualcomm, PayPal, Shopify, Simon Property Group, Trane Technologies, Xylem, and Yum Brands on Wednesday; Airbnb, Amgen, Block, Cigna, Coinbase Global, ConocoPhillips, Corteva, DraftKings, Gilead Sciences, Hyatt Hotels, Kellogg’s, Moderna, Rocket Companies, The Southern Company, Stryker, Vulcan Materials, and Warner Bros. Discovery on Thursday; and Berkshire Hathaway and Dominion Energy on Friday.

Bottom line, we have another huge week of US corporate earnings ahead of us and a long pause between now and the next Fed meeting. It will be interesting to see what the market decides to focus its attention on the next few weeks. Let’s hope it’s not the geopolitical unrest involving either Russia and or China.