Inflation, the Rise of the Internet, and What It Means for Consumers and Financial Markets: The First Day of the US Corporate Earnings Season
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“Inflation is no less relevant than it has been for the past two years,” wrote Greg McBride, chief financial analyst at Bankrate. The Consumer price index is the most watched monthly economic report.
The pace of inflation has been coming down, but they still remain above the Federal Reserve’s goal of 2%.
A month’s reading showed an increase in prices, which didn’t instill confidence that 2% was just around the corner.
For March, economists forecast a 0.4% monthly increase in the CPI, which matches the September – February average and would keep those year-over-year averages high.
“To feel good about where inflation is headed, we need to see more than just moderation in the rate of both headline and core inflation,” said McBride. “We also need to see moderation in price pressures across a wide range of categories that are staples of the household budget: shelter, food, electricity, motor vehicle insurance, apparel, and household furnishings and operations.”
What it means for markets: Between inflation data and the start to the first-quarter corporate earnings season (three of the largest US banks, JPMorgan Chase, Wells Fargo and Citigroup report this Friday), this week is set up for heightened stock volatility, said Terry Sandven, chief equity strategist at US Bank Wealth Management.
There is uncertainty over the pace of earnings growth in the years ahead, which is making it difficult to advance equity prices. Each will be in focus this week,” he said.
In March, there were some surprises, but the impact on retail clients’ exposure to the markets was neutral. For the second month in a row our clients were net buyers of the stock market, seemingly holding onto the opportunity to buy into the Financial sector lows and sell off the highs of Information Technology.
The increasing power of the retail investor – fueled by stimulus cash, easier access to trading platforms and more market education amongst other things, has been an ongoing trend since the beginning of the pandemic. Lately, large companies have begun to change their investor relations strategies to become more retail investor friendly. Now even the ‘smart money’ traders are using Reddit for stock tips.
So where do they invest their money? The Financial sector has the strongest buying interest. Despite macroeconomic catalysts such as the collapse of Silicon Valley Bank, that comes despite.
The Fed of New York Survey of Consumer Expectations: Implications for the First-Year Earnings Season for Wall Street and Wall Street Growth
Inflation expectations have increased at the short-term and medium-term horizons, according to The Federal Reserve Bank of New York’s March Survey of Consumer Expectations, released on Monday.
The survey, which asks 1,300 households in the US each month about their household income and expenditures, found that respondents were more bearish about the labor market than in the previous months. Unemployment expectations increased by 1.3 percentage points to 40.7, but the New York Fed still found no change in the US unemployment rate.
The recent banking crisis and looming credit crunch also appears to be worrying households in the United States. The Fed reported that credit access was not as good as last year in March. The share of households that claimed that it was harder to get credit than a year ago hit an all time high.
The beginning of the earnings season will include corporate guidance statements as investors attempt to gauge the state of the economy. Things could get cold.
Analysts forecast that first-quarter earnings for companies in the S&P 500 will fall 6.8% from the same period the previous year, according to FactSet. That would be the biggest earnings decline since profits plunged nearly 32% in the second quarter of 2020, after the onset of the Covid pandemic.
Earnings season for banks starts on Friday with JPMorgan Chase, Wells Fargo, BlackRock, Citigroup and PNC Financial Services slated to report before the bell. clues about stability will be watched by investors.
Stocks and Wall Street Precession in the First Five Years of the Rise and Fall of the U.S. Economy: Insights from Wall Street and Finance
Stocks have yet to price in the economy’s precarious position, with the S&P 500 adding about 7% this year. But markets have already seen volatile trading this week, after investors digested a jobs report that came in below expectations and awaited a slate of inflation data that could help decide the Federal Reserve’s next interest rate decision. The Consumer Price Index showed that headline inflation dropped for a ninth month in a row in March.
“We’re going to see a correction happen here, because it just never makes sense when the market’s going up and earnings are going down,” says Eric Sterner, chief investment officer at Apollon Wealth Management.
The White House and others have called on regulators to implement tighter rules for banks. The Biden administration last month urged federal banking agencies to reverse the Trump administration’s regulatory rollbacks.
“Greater regulation probably means lower margins or lower utilization of balance sheets for banks, which tends to be a bad thing for earnings growth,” said Jason Pride, chief investment officer for private wealth at Glenmede.
The equity market has performed better than expected this year because of the strength in tech earnings, which helped the sector to become a haven for investors during the first quarter. Meta Platforms gained over 70% and shares of Nvidia have skyrocketed over 80% this year.
Despite officials not saying that they will not cut rates, Wall Street still thinks the Fed will act later in the year, or even that it can do a soft landing. The market might begin to suffer in the next few weeks, according to Megan Horneman.
There could be a catalyst in the next two weeks with earnings and inflation data, followed by what the Fed says when they meet, said Horneman.