Market highlights for the week: Inflation, Biden, Powell


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After a holiday-shortened week, investors will keep a close eye on the upcoming economic report on inflation, which is the highlight of the week. Last week, the labor market again showed signs of moderation.

June’s nonfarm employment figures showed an increase of 206,000 jobs, a slight decline from May’s revised count of 218,000. The U.S. unemployment rate registered a slight increase from 4% to 4.1%, above the Federal Reserve’s estimate of a 4% rate for the current year. Inflationary pressures, which have been a concern for both the markets in general and policymakers, also appear to be showing signs of easing. The ISM’s prices paid index, which can forecast inflationary trends in goods and services, came in lower than expected, in line with the lowest rates since the end of the pandemic.

According to the nonfarm employment report, annual wage gains came in at 3.9%, down from 4.1% in May and one of the lowest since the pandemic. “In our view, if inflation continues to moderate and the economy softens but does not fall into recession, markets should continue to perform well. This implies that the Fed will likely begin its rate-cutting cycle, even as the economy is growing near trend levels,” Edward Jones strategists noted. “If the economy falters and the Fed must cut rates to support growth, markets will likely not hold up as well, but we see no signs of that. Keep in mind that the economy and labor market were starting from a position of outsized strength that may now be gradually normalizing.” Let’s see what’s happening in the markets for the week.

Concerns in the Democratic Party

President Joe Biden is facing growing skepticism within his own party about his potential re-election campaign in 2024. The doubts did not dissipate after his recent interview with ABC News, in which he was supposed to address these questions. Adding to Democratic concerns, two other lawmakers, Rep. Mike Quigley of Illinois and Rep. Angie Craig of Minnesota, publicly called on Biden to rethink his intention to run again.

Calls from Quigley and Craig for Biden to recant are a notable development, considering their status as members of their party. Their statements reinforce the sense of doubt that has been slowly emerging among Democratic lawmakers, strategists, and contributors. Growing voices of dissent within the Democratic Party point to a search for alternative strategies or candidates that could strengthen their chances in the next electoral contest. “We struggle to see how this uncertainty can be prolonged for more than a few more weeks,” TD Cowen strategists noted.

Powell’s speech

Federal Reserve Chairman Jerome Powell will testify Tuesday and Wednesday before the Senate and House of Representatives, respectively. While the appearances focus primarily on monetary policy, TD Cowen analysts also expect to see some questions related to many regulatory issues. “We expect a lot of questions on the Basel 3 end game, regional bank long-term debt and changes to liquidity requirements. Our expectation is that Powell will use those questions to set expectations on the Basel 3 endgame capital proposal, the long-term debt proposal for regional banks and the expected proposal on changes to bank liquidity,” TD Cowen analysts.

CPI Report

The June inflation report will be released on Thursday, July 11. Market forecasts indicate a change of 0.1% month-over-month and 3.1% year-over-year. Core CPI is expected to grow by 0.2%. Bank of America shares the market’s view on the headline and underlying numbers; however, it expects the year-over-year change to be 3.2%. “If CPI matches our expectations, we will maintain our forecast for the Fed to begin its stimulus tapering cycle in December. That said, we recognize that another 0.2% m/m for core CPI would tilt the risk toward early tapering, especially given signs of slowing activity.” Bank of America economists noted.

Second-quarter earnings season

As we await the first reports of the second-quarter earnings season, all signs point to solid results from S&P 500 companies. Projections for the second quarter of 2024 point to an 8.6% increase in earnings over the same period last year, and revenue is also estimated to be up 4.7%. This anticipated growth rate is the highest since the 9.9% increase recorded in the first quarter of 2022.

The positive trend of revisions that has preceded this earnings cycle has set the stage for what appears to be a period of continued business resilience and an improving financial outlook. The expected S&P 500 earnings growth not only indicates a solid recovery, but also signals a potential shift in market momentum.

As usual, the second-quarter earnings season officially kicks off on Friday, when JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) are scheduled to report.

Other economic data

Along with the expected CPI report, investors will also be looking at weekly jobless claims, as well as the U.S. Producer Price Index (PPI) report. They will be released on Thursday and Friday, respectively.

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