Stocks finished lower Monday afternoon. Earnings season begins this week with a a slew of bank earnings on the docket as well as some key economic reports.
The Oil & Gas Equipment & Services and Metals & Mining industries were the biggest winners today. Helping these stocks outperform the market today was oil reaching a 7-year high in WTI crude oil prices reaching as high as $82.18 per barrel and aluminum reaching its highest price since 2008 at $2,957.85 per ton.
It looks to be a busy week for investors with no shortage of headline data. Consumer and producer price indices are slated for Tuesday and Wednesday morning, while minutes from the September FOMC meeting are due Wednesday afternoon, and retail sales data from September is scheduled for Friday morning. Additionally, banks kickoff third-quarter earnings season this week, with JPMorgan (JPM) and Goldman Sachs (GS), among others, scheduled to start releasing earnings reports from Wednesday on.
Inflation, Sales UpdatesAfter last week’s jobs report came in much lower than expected and consumers facing steepening oil and energy prices, investors will be looking to consumer and producer prices to alleviate fears that inflation will prove to be less transitory than initially thought.
Wall Street’s biggest banks are maintaining the transitory inflation narrative despite growing fears of stagflation and persistent inflation. While shortcomings in global supply chains, surging commodity prices, weakening demand, and labor shortages worrying central bankers around the world and have likely contributed to investors being a largely out of the buying mood for most of September, strategists at Goldman and JPMorgan disagree saying that they believe that that this dip will prove a “good buying opportunity”.
The Core Consumer Price index could help either side prove their point. Consumer price increases are expected to have picked up in September with consensus estimates set at a growth of 0.3% after a 0.1% readingin August. Consecutive slower-than-expected price increases for the consumer could help alleviate fears for persistent inflation that will harm spending.
Core Producer Prices are expected to have increased 0.5% in September after increasing 0.6% in August. In the previous report, Producer Prices rose to a fresh record for year-over-year growth, so any pullback could also help to alleviate inflation fears.
Lastly, Retail Sales are expected to take a 0.3% hit in September after rebounding in August and rising 0.7%. Demand for motor vehicles and parts dealers declined as spending in the category fell 3.6% last month as car prices remain elevated. Meanwhile, online demand remained strong as non-store sales increased 5.3%.
EarningsIn addition to key economic data, some of the largest banks in the world will kick off earnings season.
Investors are expecting earnings to slow sharply from the incredible pace in int he second quarter. The S&P 500 is expected to grow by 27.6% in aggregate for the third quarter, according to FactSet. This is a deceleration from FactSet’s reported 90% growth rate realized by the S&P 500 in quarter two. However, comparisons to the previous quarter may not be entirely fair as year-over-year growth was overlapping with the worst points of the pandemic, giving some attractive transitory growth.
Analysts are expecting a mixed set of reports this quarter. After remaining stagnant in previous reports, analysts are expecting a positive outlook on net interest revenues due to both higher interest rates and new loan demand in both consumer and business markets.
Further, investors will be looking for signs that borrowing in a commercial and industrial setting has stopped its decline. This would be critical to investors as it could imply that constraints in supply chains are easing, allowing companies to replenish inventories, which typically require bank financing.
Lastly, bank earnings will stop being as inflated this time around due to decreased accounting adjustments that came from releasing reserves for pandemic-related loan losses that didn’t materialize.
Economic Events this WeekTuesday - 10:00 a.m. - JOLTS - Job Openings
Wednesday - 8:30 a.m. - CPI and Core CPI - 10:30 a.m. - EIA Crude Oil Inventories
Thursday - 8:30 a.m. - Initial & Continuing Claims - 8:30 a.m. - PPI and Core PPI
Friday - 8:30 a.m. - Retail Sales - 8:30 a.m. - University of Michigan Consumer Sentiment - Preliminary Reading