A Little Bit Of Everything All Of The Time: Inflation, Earnings & The Fed

The Dark Side Of The Fed

Great Ones, today we’re ticking away the moments that make up a dull day.

But while it was a rather uneventful Monday, that’s no reason to fritter and waste the hours in an offhand way.

No, sir! This week is jam packed with important economic data and market-moving earnings reports.

In fact, some people are calling this the “most important week of the summer.” Those “some people” include Leo Grohowski, the chief investment officer at BNY Mellon Wealth Management, just in case you were wondering.

Let’s start off with the biggest event of the week, the Federal Open Market Committee (FOMC) meeting on U.S. monetary policy — i.e., interest rate hikes from the Federal Reserve.

The FOMC meeting starts tomorrow and runs through Wednesday, when the Fed is expected to once again hike interest rates by 75 basis points.

As we all know, the Fed is trying to fight inflation, which surged 9.1% in June according to the Consumer Price Index.

But, as we also all know, many of the factors driving record inflation are not directly affected by interest rate hikes.

Will that stop the Fed? Not on your life.

The Fed needs to wind down all that excess cash floating around in the financial system, and raising interest rates is the easiest way to accomplish that goal … even if those aggressive rate hikes cause a recession.

GDP On The Run

What I'd miss keep Greatness flowing meme

Speaking of recession, the U.S. Q2 gross domestic product (GDP) report will hit on Thursday, a day after the FOMC meeting. Economists expect Q2 GDP to either decline 1.6% — per the Atlanta Fed GDP Now website — or rise 0.3%.

You might remember that Q1 GDP fell 1.6%. You might also be aware that a recession is technically defined by two consecutive quarters of economic decline. Put two and two together and you come up with the not-so-startling revelation that the U.S. is already in an economic recession.

But, Mr. Great Stuff, the report isn’t even out yet! How can you say that?

Because Biden administration officials are already doing damage control. For instance, Treasury Secretary Janet Yellen downplayed recession fears on Meet the Press on Sunday, citing strong jobs growth and healthy consumers.

Ironically, every time I hear about “healthy consumers,” analysts are talking about how consumer spending continues to rise. I find that reasoning particularly funny given that … of freaking course consumer spending is up. I mean, when inflation is rising at the fastest pace in 40 years, consumers are obviously spending more — but it doesn’t mean they are buying more.

In fact, with GDP falling, I’d say we have proof that consumers are actually buying less … but just paying more for it. That is, after all, what inflation is all about, Charlie Brown.

Any Color You Like

The Fed preferred inflation indicator coming Friday

If the FOMC or U.S. GDP aren’t enough for you, well … you’re in luck!

We also have personal consumption expenditures (PCE) data arriving on Friday.

This is the Fed’s preferred inflation indicator because it doesn’t put as much weight on things like food, energy prices and rents … because who needs those, right?

Anyway, the PCE Index dropped to 4.7% in May, but is expected to have rebounded in June.

Yes, June. This is a very backward-looking indicator … but you wouldn’t expect any less from the Fed, would you?

Also arriving on Friday are the Employment Cost Index and the latest Consumer Sentiment Index reading. Economists will be on pins and needles to see if consumer sentiment tanked again after hitting its lowest reading ever taken last month. Still think the U.S. consumer is strong? Huh…

And last, but certainly not least, reports on home prices and new home sales will arrive tomorrow morning. Y’all already know my opinion on the housing market, and I don’t expect either of these reports to change my mind.

Now, I know it looks scary out there, Great Ones. I know you’d probably feel more comfortable kicking around on a piece of ground in your hometown. But if you’re waiting for someone or something to show you the way … here’s your sign:

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Speak to me, Great Ones. Have you picked up on today’s musical theme? It’s all about time, money, us and them and the great gig in the sky.

Come on, Mr. Great Stuff. You’re giving me brain damage!

I see what you did there. For those that haven’t picked up on it yet, today’s musical theme has been Dark Side Of The Moon by Pink Floyd. Excellent album, by the way.

If ol’ Pink Floyd isn’t your jam, why not write in and let me know what music or artist you’d like to see m try to work into these digital pages? Drop me a line at GreatStuffToday@BanyanHill.com and let me know.

Wait, what about earnings? You mentioned major earnings reports this week.

I did and I haven’t forgotten. I’ve saved the best brain damage for last, Great Ones. This week’s earnings lineup might even eclipse all that economic data I prattled on about up above. Just remember to breathe after you look at this list:

I mean, jeepers crow!

Every company who’s any company is reporting this week. Here’s a quick highlight:

Tuesday: UPS, Coca-Cola, General Motors, McDonald’s, Alphabet, Microsoft, Visa, Chipotle.

Wednesday: Shopify, Boeing, Meta, Ford, Qualcomm, Etsy, QuantumScape.

Thursday: Pfizer, Southwest, Mastercard, Apple, Amazon, Roku, Intel.

Friday: Exxon Mobil, Chevron, P&G, Abbvie, AstraZeneca…

And that’s just to name a few.

There are some 175 S&P 500 companies releasing their quarterly reports this week. What’s more — what’s really gonna rattle your noggin — is that the actual quarterly numbers probably won’t mean that much.

Sure a beat on profits or revenue here or there will make for good headline news, but everyone and their mother is gonna be focused on guidance this week.

Why?

Because investors are looking for additional signs of a full-blown recession. Since practically all of the economic data we are getting this week is backward looking — i.e., these reports tell us what has already happened — investors will look to corporate guidance as a gauge of what’s coming down the road.

Hold on to your butts, Great Ones. This is gonna be a fun week.

Dude, your idea of “fun” is quite unsettling.

I hear that a lot.

If you want to see what else I do for fun, why not check out Great Stuff’s official TikTok?

You heard me: Official. TikTok.

If you haven’t checked out the ‘Tok yet, time is Tikking. Trust me, there’s no better way to decompress from the adrenaline of earnings season than some time on the social meeds.

So click here to follow us on TikTok!

If you’re already a follower, thank you! Tell us what you like to see — and what you’d like to see more of. Comment on posts or email us with your TikTok thoughts: GreatStuffToday@BanyanHill.com. We’ll see your message one way or another.

Once you’ve rambled on and sang your song, here’s where else you can find us across the interwebs: