Week Ahead on Wall Street: Economic Trajectory

Estimated reading time: 6 minutes

How Cool Is Too Cool?

The economy has gradually cooled over the last year or two, but where is it headed? 

Inflation has come down notably, while the labor market continues to remain resilient (even though it’s not as blazing hot as it was two years ago). As Federal Reserve Chair Jerome Powell noted at his congressional testimony last week, the risks to the Fed’s dual mandate of maximum employment and price stability were once skewed toward prices, but now they are more in balance.

While the economy has gone from “too hot” to what some might say is “juuuuust right,” others are concerned that it could cool further from its goldilocks state into something that’s too cold. Here’s why: Let’s use last week’s inflation report as an example. Against expectations for an increase of 0.1%, prices actually fell 0.1%. The prices consumers pay are the prices others earn, and so if people are paying less for the overall basket of goods and services, all else equal, that would mean businesses earn less. 

Of course, real life economics is rarely that simple. Even in the most stable of times, it’s hard to perfectly measure what’s going on in something as complex as the globalized American economy. While consumer inflation came in cold, wholesale inflation (the producer price index) came in above estimates. 

So which is telling the truth? It’s unclear, but earnings season might be able to give us a clue. 

Having just started last week, it’s still too early to know how public companies fared in the second quarter relative to expectations. However, the number of companies reporting results is set to ramp up this week. Investors will likely analyze their results and guidance for signs on where the broader economy is headed. 

The consensus seems to think earnings growth will accelerate from this quarter onward, which would suggest that the inflation decline we’ve seen isn’t a canary in the coalmine. Economic goldilocks until further notice.

Economic and Earnings Calendar

Monday

• July Empire State Manufacturing Activity: The New York Fed’s survey of manufacturing executives in the region on business conditions and their outlook.
• Fedspeak: Fed Chair Jerome Powell will be interviewed by David Rubenstein at the Economic Club of Washington D.C, followed by Q&A. San Francisco Fed President Mary Daly will participate in a moderated conversation about the economy, technology’s impact on monetary policy, and how artificial intelligence will affect the labor market.
• Earnings: BlackRock (BLK), Goldman Sachs Group (GS)

Tuesday

• July New York Services Activity: The New York Fed’s survey of manufacturing executives in the region on business conditions and their outlook.
• June Retail Sales: This measures spending at retail stores and is a key indicator of consumer demand.
• July NAHB Housing Market Index: This index tracks how homebuilders feel about the current and future state of the single-family housing market.
• Fedspeak: Fed Governor Adriana Kugler will speak on challenges facing economic measurement and what can be done about it, followed by Q&A.
• Earnings: Bank of America (BAC), JB Hunt Transport Services (JBHT), Morgan Stanley (MS), Omnicom Group (OMC), Progressive (PGR), PNC Financial Services Group (PNC), Charles Schwab (SCHW), State Street (STT), UnitedHealth Group (UNH)

Wednesday

• June Building Permits and Housing Starts: Construction data is a leading indicator of business activity.
• June Industrial Production and Capacity Utilization: The industrial sector accounts for much of the cyclical swings in economic activity. 
• Fed Beige Book: This report is released eight times per year and tracks the state of the economy based on qualitative information.
• Weekly Mortgage Applications: Mortgage activity gives insight on demand conditions in the housing market.
• Fedspeak: Richmond Fed President Thomas Barkin will give informal remarks on the economy and take audience Q&A. Fed Governor Christopher Waller will discuss the economic outlook, followed by Q&A.
• Earnings: Crown Castle International (CCI), Citizens Financial Group (CFG), Discover Financial Services (DFS), Equifax (EFX), Anthem (ELV), Johnson & Johnson (JNJ), Kinder Morgan (KMI), Northern Trust (NTRS), Prologis (PLD), Steel Dynamics (STLD), Synchrony Financial (SYF), United Airlines (UAL), US Bancorp (USB)

Thursday

• July Philadelphia Fed Manufacturing Activity: The Philadelphia Fed’s survey of manufacturing executives in the region on business conditions and their outlook. 
• June Leading Economic Index: This is an index composed of various economic indicators that have historically led changes in the broader economy.
• Weekly Jobless Claims: This high frequency labor market data gives insight into filings for unemployment benefits. Jobless claims have continued to show a labor market that remains strong despite having cooled.
• Fedspeak: Dallas Fed President Lorie Logan will give opening remarks at a conference co-hosted by the Dallas and Atlanta Fed. San Francisco Fed President Mary Daly will participate in a fireside chat at a conference co-hosted by the Dallas and Atlanta Fed. Fed Governor Michelle Bowman will give the keynote address at the Dallas & Atlanta Fed conference on accountability and reform.
• Earnings: Abbott Laboratories (ABT), Blackstone Group LP (BX), Cintas (CTAS), DR Horton (DHI), Domino’s Pizza (DPZ), Intuitive Surgical (ISRG), KeyCorp (KEY), Marsh & McLennan Companies (MMC), M&T Bank (MTB), Netflix (NFLX), PPG Industries (PPG), Snap-on (SNA), Textron (TXT)

Friday

• Fedspeak: New York Fed President will participate in a panel on the topic A New Era for Monetary Policy. Atlanta Fed President Raphael Bostic will give closing remarks at the Dallas & Atlanta Fed conference.
• Earnings: American Express (AXP), Fifth Third Bancorp (FITB), Halliburton (HAL), Huntington Bancshares (HBAN), Las Vegas Sands (LVS), Regions Financial (RF), Schlumberger (SLB), Travelers Companies (TRV)

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