Wall Street Prepares for Consumer Insights: Earnings Season and Economic Data Will Shape Market Outlook
With inflation showing signs of easing, investors are shifting their focus to the consumer as earnings season heats up and key economic data is expected to shed light on the health of the economy. The coming week will bring a flood of corporate earnings reports, providing valuable insight into consumer spending habits—a crucial factor in determining the Federal Reserve’s future rate decisions and the overall trajectory of the market.
Key Takeaways:
- Earnings Season: A Key Test for Consumer Sentiment: The second week of earnings season will see a significant surge in reports, covering over 20% of the S&P 500 index. This will provide a comprehensive view of how companies are navigating economic headwinds and how consumers are responding.
- Focus on Consumer-Related Companies: Companies like Sherwin-Williams, Whirlpool, and Visa will be closely watched to gauge the health of the housing market and the impact of inflation on different consumer segments.
- Macroeconomic Data: Crucial for Fed Policy: Key economic indicators like GDP growth and the personal consumption expenditures price index (PCE) will be examined for signs of slowdown or further easing of inflation, offering guidance on the Fed’s upcoming rate decisions.
- Volatility Expected, but Long-Term Optimism Remains: Despite potential near-term market volatility, analysts generally believe the long-term outlook remains positive, with equities expected to rebound later this year.
Earnings Season: A Window into Consumer Behavior
The first week of earnings season saw a strong start, with 82% of S&P 500 companies exceeding analysts’ expectations. However, the upcoming week will be pivotal as it features a large number of companies with significant consumer exposure.
Housing Sector and Consumer Spending
Several companies tied to the housing sector will be reporting results, including commercial real estate firm CBRE, paint and coating maker Sherwin-Williams, and appliance manufacturer Whirlpool. These reports will give investors a deeper understanding of the housing market’s cooling trend and its impact on inflation and consumer confidence.
"It’s a major component of household worth and the state of the consumer," explained Charles Ashley, portfolio manager at Catalyst Funds. "Having a robust real estate market is important for the economy in general, and I think also for us to read the tea leaves on what the Fed’s gonna do next."
The results from Visa, following American Express’s recent reports, will also be critical in assessing the impact of inflation on higher-end consumers.
The "Magnificent Seven" and the AI Trade
The week will also see some early data points from the "Magnificent Seven"—large-cap tech giants driving the AI boom. Alphabet, the parent company of Google, and Tesla will release their reports on Tuesday, offering a glimpse into the progress and potential future of the AI sector.
Macroeconomic Data: Key Insights into Inflation and Growth
In addition to earnings reports, next week will also see the release of key macroeconomic data, providing a more comprehensive picture of the economy and its trajectory.
GDP, Inflation, and Fed Policy
The Commerce Department’s preliminary reading of second-quarter gross domestic product (GDP) is expected to be released on Thursday, with economists anticipating a growth rate of 1.9% year-over-year. Meanwhile, the June personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, is scheduled for release on Friday. The core PCE reading is expected to show a monthly gain of 0.1%, while the year-over-year rate is expected to decline slightly to 2.5%. The Fed is targeting a 2% inflation rate.
These reports will provide further insight into the pace of economic growth and the progress made in taming inflation. The data will be closely watched by investors, as it will influence expectations about the Federal Reserve’s future interest rate decisions.
"I think the Fed needs to be mindful of the potential for the economy to deteriorate faster than everybody’s expecting right now," said Ashley. "We’ve already seen some softness in a little bit of the consumer, a little bit in housing. And so, if the Fed is too slow to act, that could accelerate quicker than I think the market anticipates."
Other Economic Indicators
The June existing home sales data is expected early in the week, while the Chicago Fed National Activity Index, Richmond Fed Index, Markit PMI Composite, Markit PMI Manufacturing, Markit PMI Services, Durable Orders, Initial Claims, Continuing Jobless Claims, Wholesale Inventories, Kansas City Fed Manufacturing Index, and Michigan Sentiment will also provide insights into various sectors of the economy.
Market Outlook
While earnings and macroeconomic data will likely drive market volatility in the coming weeks, analysts maintain a long-term optimistic outlook, expecting equities to rebound towards the end of the year.
"We’re probably due for a pause from equities and probably go sideways," said Terry Sandven, chief equity strategist at U.S. Bank Asset Management Group. "That’s not to say that a bear market is here. It’s just to say that we’re probably due for a little backing and filling until we get closer to October, and then visibility for the new year."
The coming weeks will be crucial for investors in understanding the health of the consumer and the impact it will have on both corporate profitability and the Federal Reserve’s policy decisions. However, with the potential for market volatility, it is essential for investors to remain disciplined and focused on long-term goals, keeping a close eye on the data and company performance.
