The markets are set to experience a busy and volatile week. The Federal Open Market Committee (FOMC) will be meeting and making another decision as to its monetary stance. All indications are that a Fed Funds rate hike of 75 basis points is likely to be reported on Wednesday.
I believe that with inflation showing signs of topping out that a less aggressive posture is necessary. However, over the weekend; Larry Summers, former Clinton administration Treasury Secretary; who predicted months ago that Biden’s mishandling of the economy would create inflationary pressures not seen in a generation; is now warning of a high likelihood of recession that will not be cured with an economic soft landing. As the markets give Summers more credibility than current Treasury Secretary Janet Yellen, the equity markets will look to Summers for economic guidance. As a footnote, Summers is the nephew of two Nobel Laureates in Economics, Paul Samuelson, and Kenneth Arrow, which carries weight in the real world of Wall Street.
The economic calendar this week is also busy and could move markets. On Tuesday there is the May S&P Case-Shiller home price indices (it is a bit stale by now), developed by my professor and Nobel Laureate in Economics, Robert Shiller. We will also get a fresher look at the economy through the July Consumer Confidence index. Additionally, we will see the new home sales for June. Wednesday, we expect to hear from the FOMC while Durable Goods Orders and pending home sales for June are both expected to be released. Thursday’s release of 2Q Gross Domestic Product (GDP) will likely cause some knee-jerk market moves. I will tell you that the FOMC already sees that datapoint before the markets do and should be factored into the monetary decision. On Friday we will get some inflationary data headed up by the Personal Consumption Expenditure Index (PCE) for June. PCE is expected to rise 6.3% year-over-year (y-o-y) after rising 6.3% y-o-y in April and May and 6.6% in March. Perhaps this series of data points are indicative of a topping out of inflation.
Earnings this week are primarily centered around the financial and technology sector. Rising interest rates will be reflected in those financial results and supply chain issues will be reflected in technology results. All the big kahuna technology companies are set to report such as Microsoft (MSFT), Alphabet (GOOG / GOOGL), Apple (AAPL) and Amazon (AMZN). On top of that, there is a smattering of consumer related company results such as McDonald’s (MCD), Kimberly-Clark (KMB) and Sherwin-Williams (SHW) to name a few.
Expect corporate management to err on the side of conservatism when they provide color and guidance for the near future. There is no reason for them to be overly optimistic and they are better off under promising and overdelivering. Inflation, recession, and supply chain factors will all be used as a crutch to soften investor expectations.
In July, a bid has come into the market and growth stocks in general. The Standard & Poor’s 500 (SPX) is getting close to mean reversion which according to my calculations is 4,015. Technically, the major indices are trading above their 50-day moving average. So, much of the technical damage to the equity markets is being repaired. The prime determinants as to whether those technical levels hold or fail will be this week’s earnings and economic results.
All told, the calendar is quiet for Monday, but be prepared to strap on your helmet and shoulder pads as things will get a bit bumpy beginning Tuesday.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long AAPL, AMZN, GOOGL, KMB, MCD, MSFT, SPY, SSO and SPXL- although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high net worth private wealth management. LVAM is affiliated with Kingswood Wealth Advisors Services, a registered investment advisor. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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