Stocks Lower Monday Ahead of Choppy Week; Inflation, Spending, and Consumer Confidence Updates on Deck

Stocks turned lower Monday afternoon after opening higher. Cryptos declined 2% on the whole as Bitcoin continues to float around the $20,000 mark.

The second quarter is winding down and earnings season looms ahead. This created a choppy trading environment Monday, which could extend throughout the week as money managers rebalance portfolios for the quarter to come.

Despite a likely choppy week without a clear headline that the market mulls over for multiple days - like with Fed meetings - there will still be some key economic reports worth a follow. The biggest reports will come Thursday via the Personal Consumption Expenditures (PCE) Price Index and the Personal Income & Outlays report.

Other key reports are the Consumer Confidence report Tuesday morning and the ISM Manufacturing Index update on Friday.

Inflation & Spending

The PCE Price index is expected to have ticked higher in May to a monthly rate of 0.7%, with the core reading expected at a 0.4% rise. This follows slight gains of 0.2% and 0.3%, respectively.

A half-point tick higher to the headline figure's monthly pace, which includes volatile prices such as food and energy, should be no surprise. During the month of May, a barrel of West Texas Intermediate rose 9.3% - so a jump should be expected.

Reactions to this report will come down to, was it better or worse than feared? Further, how broad were the price increases?

The May CPI report, which sparked this most-recent selloff, had troubling signs as broad price increases extended to products like used cars and new vehicles, which - at the time - were predicted to soften. Add price increases in shelter, food, and energy, and the peak inflation narrative all but disintegrated.

On the Income and Spending side, what we are watching for is resilience. Income and Spending are both expected to rise at a monthly rate of 0.5%.

Personal spending has stayed steady in the face of inflation, but, in the zero-sum game we are playing, that's come at an unsustainable cost as the personal savings rate continues to erode - currently at 4.4% after finishing December at 8.7%.

The spending and income side of the BEA’s report will be extra interesting this time around after comments last week by St. Louis Fed President James Bullard. Bullard justified his opinion that it's too early to talk about a potentially-looming recession as resilient spending is being powered by $3.5 trillion in unspent Covid aid, which he believes will buoy spending and the economy.

Consumer Confidence

Unspent Covid aid is all fine and dandy, but consumers have to have some amount of confidence in order to be willing to part with it.

A study out of MIT showed that most Americans didn’t spend the first economic impact payment - except those who had no choice but to spend it.

Consumer Confidence is expected to have continued its decline in June, with estimates set for a decline to a reading of 101.0 - from May’s reading of 106.4.

It will be interesting to see what comes from here. A recent report from the LendingClub Corporation (LC) showed that a third of individuals making over $250,000 per year are living paycheck to paycheck. The lower and middle-class ranges are currently at 79.9% for those earning under $50,000, and 63.8% for those between $50,000 and $100,000.

In order for the unspent Covid aid to keep spending afloat, people need to continue to feel secure enough to partake in discretionary spending. The interesting question is, at what point does spending slow/stop by the people that still have some room to spend?

The more financially conservative and/or frugal individuals - who probably have a lower bar for ceasing spending activity - likely make up the bulk of those who still have some of those Covid funds.

That doesn’t mean Bullard is wrong for pointing out unspent Covid aid as an anchor point for the economy, but it does underscore the need to keep things from getting much worse than they currently are as we don’t know where the breaking point is for those people.

The Rest

Briefly, the ISM Manufacturing Index is expected to expand at a slower pace with a reading of 55.0% in June. The prices index eased for its third straight month in the last report, while respondents to the survey remained optimistic over demand.

Meanwhile, earnings will pick up this week, but the real flood won't begin for a couple of weeks.

Nike (NKE) and Trip.com (TCOM) will kick us off after market close today. Keep an eye out for comments regarding changing consumer spending habits, pickups in trip cancellations, and supply chain updates. Travel was supposed to have a robust summer, while Nike and other retailers could benefit from the Lipstick Effect.

General Mills (GIS) and Constellation Brands (STZ) will be important updates as the respective food and adult-beverage companies could have further price increases in store.