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Big Week for Data, Earnings Starts Quiet

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Monday, October 10, 2022

We have a significant week ahead of us in the markets, although the good stuff doesn’t really get here until Wednesday. Currently, we’re feeling the calm before the storm of inflation data and the unofficial start of Q3 earnings season. After finishing last week in positive territory (thanks to a big surge early in the week that melted away save 1% or so by the end of it), the Dow is currently -12 points, the S&P 500 is -6 and the Nasdaq is -33 points at this hour.

The big news for the week will be along two paths: 1) Consumer Price Index (CPI) data for September, which claims a big percentage of the inflation pie, especially year over year, and 2) the biggest banks on Wall Street are releasing Q3 earnings — including JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) , Wells Fargo (WFC - Free Report) , Morgan Stanley (MS - Free Report) and U.S. Bancorp (USB - Free Report) . Not only this, but a wide swath of major Q3 reports are also expected this week, including PepsiCo (PEP - Free Report) , Delta Air Lines (DAL - Free Report) , Taiwan Semiconductor (TSM - Free Report) , Walgreens Boots Alliance (WBA - Free Report) and UnitedHealthcare (UNH - Free Report) .

For CPI data, we look for the third consecutive lower print for the month of September, down from June’s peak +9.1% year over year to +8.5% for July and +8.3% in August (which matched April’s +8.3%). To the June figure, we saw 10 of 11 months of CPI data headed higher; August 2021’s year-over-year CPI was 300 basis points lower than August 2022. Expectations for September 2022 are a further modest move lower, to +8.1%.

Core CPI data — stripping out volatile food and energy prices — is proving a stickier wicket: +6.6% is expected for September, which is actually 30 basis points higher than August. What the Fed really wants to see, arguably as much as lower CPI on headline, is core CPI to head back down, as well. Otherwise, it will have little choice but to keep raising interest rates until something consequential in the global economy breaks.

For Q3 earnings, using JPMorgan as a key example, earnings growth is expected to be -20% negative year over year, with +8% growth on the top line. It’s not been a great year for the big banks, and JPMorgan is case-in-point: what’s expected for full-year 2022 is -26% earnings growth on +4% revenue. So we can see Q3 should be something of an improvement over the first half of this year. Looking out to 2023, these trends look a lot stronger: +14.5% earnings growth, +9% on revenues.

This week, we’ll also get the sister report to CPI, Wednesday’s Producer Price Index (PPI), the published minutes of the September 21st Federal Open Market Committee meeting which brought us a third consecutive 75 basis-point interest rate hike, Weekly Jobless Claims on Thursday and Retail Sales, Import Prices and the University of Michigan consumer sentiment survey on Friday. By the end of this week, we should have a lot more understanding how fast and how far our economy is turning.

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