It’ll be an eventful week, but it starts at a summer-slow pace. Major inflation reports, combined with some of the top companies at the front end of Q2 earnings season, will bring us to a new level of understanding in both the markets and the economy by Friday afternoon. We also see testimony on Capitol Hill from Federal Reserve Chair Jerome Powell on Tuesday (Senate) and Wednesday (House), which will likely add plenty of context for when the first interest rate cut in several years may take place.
Ahead of Monday’s opening bell, all major indices are pretty confidently in the green. This goes especially for the small-cap Russell 2000, the only one of the Big 4 last week to finish in the red. We’re currently +37 points on the Dow, the S&P 500 is +3 and the Nasdaq — up another +3% last week, +23% year-to-date — is currently up a marginal +0.06%. The market has been pricing-in good news ahead of inflation and earnings-season reports, with the S&P and Nasdaq closing Friday at new record highs.
We circle Thursday morning on our calendar. That’s when Consumer Price Index (CPI) numbers hit the tape, including headline year-over-year CPI, aka the Inflation Rate. This metric is expected to come down 20 basis points (bps) month over month, to +3.1% for June. This would still be 10 bps higher than June of last year, where we’ve been bandying about ever since (down from a +9.1% Inflation Rate the June before that). A downward surprise beneath the “3-handle” would be the first time we’d been there since March of 2021.
The Producer Price Index (PPI) comes out Friday morning. This headline year-over-year number has been among the lowest inflation prints anywhere in the U.S. of late: +2.2% for May. Core PPI year over year was a full percentage point higher: +3.2%. Again, we see the near-term stickiness around +3% inflation, with the Fed apparently ever-patient to reduce rates from their current +5.25-5.50% range, where we’ve been since late July of last year.
Fed Chair Powell will field questions about this beginning tomorrow, ending Wednesday. As of the last Federal pen Market Committee (FOMC) meeting, the Fed had lowered expectations from two or three interest-rate cuts to now just one through the rest of the year. This has effectively cooled any talk about a July cut, even as economic figures trend back to our best-case “soft-landing” scenario. Most analysts now look for that first rate cut to come at the September FOMC meeting.
Also on Thursday, a pair of household names kick off Q2 earnings season. Airline major Delta Air Lines (DAL) is expected to report -11.2% earnings per share (based on pretty tough comps, year over year) on a +4.5% gain in quarterly revenues. PepsiCo (PEP) also reports Thursday morning, expecting typically modest growth on both top and bottom lines: +1.2% on revenues, +3.3% on earnings. Friday brings us the first of the Big Banks reporting: JPMorgan (JPM), Citigroup (C) and Wells Fargo (WFC).
Later this afternoon, Consumer Credit for May comes out. This is expected to buoy up to +$8.0 billion from +$6.4% billion posted a month ago. We appear to be leveling off between the $17+ billion we’d seen a couple months going back to late last year, and the -$14.4 billion from December of 2023. We don’t expect this to move the needle on any pending Fed decision, but it’s worth keeping an eye on.
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