Inflation data, bank earnings: What to know this week
Inflation data and the start of second quarter earnings season await investors in the week ahead with markets expecting a solid crop of results in the coming weeks and another rate hike from the Federal Reserve later this month.
Wednesday morning will feature the Consumer Price Index (CPI) for June, with June's Producer Price Index (PPI) out Thursday, and the initial July reading for the University of Michigan's consumer sentiment index on Friday.
The week will close with some of America's largest financial institutions, including JPMorgan (JPM), Wells Fargo (WFC), Citi (C), and BlackRock (BLK), kicking off second quarter earnings season.
Markets enter the week after a shortened trading week saw stocks edge lower as the June jobs report reflected a "lukewarm" US labor market, but with the economy adding more than 200,000 jobs last month another rate hike from the Fed — or more — is all but certain.
Stocks enter second quarter earnings season after a strong first half of 2023, with the tech-heavy Nasdaq (^IXIC) leading gains, rising more than 30%. The benchmark S&P 500 (^GSPC) is up nearly 15% while the Dow Jones Industrial Average (^DJI) has risen just 1.7%.
Friday's jobs report showed the US economy added 209,000 jobs in June, missing Wall Street estimates and reflecting a slowdown from the previous month, data from the Bureau of Labor Statistics showed Friday.
The unemployment rate now stands at 3.6% while hourly wages rose 4.4% over the same month last year.
Economists and market strategists were largely in agreement that although nonfarm payrolls decreased from May, the 0.1% drop in unemployment and a continued increase in hourly wages warrant additional action from the Fed.
"The Fed would need to see more evidence of a sustained cooling of wage growth for it to stay on the sidelines," economists at Oxford Economics wrote on Friday. "That was not evident in the latest jobs report, which included another month of sturdy wage increases. Workers are still in the driver’s seat as labor conditions, while easing, remain historically tight."
Entering the week, data from the CME Group showed investors pricing in a ~93% chance the Fed raises rates this month and a roughly 40% chance at least two more 0.25% rate hikes are announced by the central bank through November.
This week will shape expectations around the Fed's longer term plans, with CPI data expected to show a continued slowdown in inflation pressures. Wall Street economists expect headline inflation rose just 3.1% annually in June, a slowdown from the 4% rise seen in May. May's data was the slowest year-over-year inflation reading since April 2021. Prices are set to rise 0.3% on a month-over-month basis.
On a "core" basis, which strips out food and energy prices, CPI is forecast to rise 5% over last year in June, a slowdown from the 5.3% increase seen in May. Monthly core price increases are expected to clock in at 0.3%.
"We look for the core CPI to downshift alongside a decline in core goods prices," Wells Fargo's team of economists wrote on Friday.
"The ongoing improvement in supply chains has helped to ease pressure on goods, and we expect vehicle prices to contract in June. At the same time, core services are likely to stay firm. Shelter inflation is only slowly cooling off, while medical care and recreational services have scope to rebound in June. The Fed will welcome the continued moderation in price growth, though the road back to 2% inflation remains long."
On the corporate side, earnings from Delta Air Lines (DAL) and PepsiCo (PEP) are expected on Thursday, followed by a slew of earnings from the financial sector on Friday morning with JPMorgan, Wells Fargo, Citi, and BlackRock all set to report.
Investors will be keenly focused on how banks continue to grapple with the fallout from this spring's bank failures and the subsequent deposit drains across the system. As ever, JPMorgan Chase CEO Jamie Dimon's comments on the state of the US economy and banking sector will be closely monitored.
"JPM could surprise to the upside in terms of the revenue synergies from the [First Republic] deal," Goldman Sachs managing director Richard Ramsden wrote in a note on July 5. "WFC should benefit from less capital markets exposure, given expected weakness in these businesses in the quarter, as well as potentially better, idiosyncratic margin trends."
Entering second quarter earnings season, investors will be watching to see if S&P 500 companies register an earnings decline for the third straight quarter.
Strong economic data reported over the past two weeks has indicated the consumer remains resilient, but what companies signal about a potential slowdown in the second half will be in focus.
Data from FactSet published Friday showed S&P 500 companies are expected to report a 7.2% drop in earnings from the same period last year, which would mark the largest annual drop since the second quarter of 2020.
However, we'd note that Energy is expected to see earnings drop 48.3% from a year ago, while sectors like Consumer Discretionary and Communication Services — which have been key to this year's rally — are forecast to see earnings rise 26% and 12% in the second quarter, respectively.
Weekly calendar
Monday
Economic data: Wholesale inventories month-over-month, May (-0.1% expected, -0.1% previously); Wholesale trade inventories month-over-month, May (0.3% expected, 0.2% previously)
Earnings: WD-40 (WDFC)
Tuesday
Economic data: NFIB Small Business Optimism, June (89.9 expected, 89.4 prior)
Earnings: No notable earnings
Wednesday
Economic data: Consumer Price Index, month-over-month, June (+0.3% expected, +0.1% previously); CPI excluding food and energy, month-over-month, June (+0.3% expected, +0.2% previously); Consumer Price Index, year-over-year, June (+3.1% expected, +4% previously); CPI excluding food and energy, year-over-year, June (+5% expected, +5.3% previously); Real Average Hourly Earnings, year-over-year, June (+0.2% previously); Real Average Weekly Earnings, year-over-year, June (-0.6% previously); Federal Reserve's Beige Book
Earnings: No notable earnings
Thursday
Economic data: Initial jobless claims, week ended July 8 (250,000 expected, 248,000 previously); Producer Price Index, month-over-month, June (+0.2% expected, -0.3% previously); PPI, year-over-year, June (+0.4% expected; +1.1% previously); Core PPI, month-over-month, June (+0.2% expected, +0.2% previously); Core PPI, year-over-year, June (+2.6% expected; +2.8% previously)
Earnings: Delta Air Lines (DAL), Pepsi (PEP), Progressive (PGR)
Friday
Economic data: Import prices, month-over-month, June (-0.1% expected, -0.6% previously); Export prices, month-over-month, June (0.0% expected, -1.9% previously); University of Michigan consumer sentiment, July preliminary (65.5 expected, 64.4 previously)
Earnings: JPMorgan (JPM), Citigroup (C), BlackRock (BLK), State Street (STT), Wells Fargo (WFC), UnitedHealth (UNH)
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