Earnings Pessimism May Be Overdone

Podcast Intro:

From LPL Financial, welcome to Market Signals.

Jeff Buchbinder:

Hello everyone. Welcome to the latest edition of LPL Market Signals. Jeff Buchbinder here with my good friend and colleague, Quincy Krosby. Hello Quincy. How are you today?

Quincy Krosby:

I'm fine, Jeff. You're looking really good. And you are back in the saddle.

Jeff Buchbinder:

I am indeed. Had hip surgery last week, but I'm feeling really good and glad to be back. Sorry, I missed last week's podcast, which was about the Midyear Outlook. The LPL Research Midyear Outlook was released last week. And I know you, Lawrence and Jeffrey Roach went through the mm-hmm. <Affirmative>, you know, the highlights of the report and our updated views for the second half. Really sorry that I missed that. We also did a special call for LPL advisors running through that. But certainly, I'm thrilled to be a part of the process to at least write it, even though I didn't help too much presenting it. So today is July 19. We're going to talk about three things. The title of the podcast we've chosen is "Earnings Pessimism May be Overdone", and wow, is there a lot of pessimism.

 

So first we'll talk about earnings season. You know, even though there is a lot of pessimism, we still think a mid-single digit increase in S&P 500 earnings is in the cards. Second, we'll talk about some of the encouraging signs on the inflation front recently, in terms of data. We know the last CPI number was awful, but when you look at some things in the marketplace that are telling you about future inflation data, you might actually see some reasons for encouragement. So, we'll walk through some of those. And then lastly, we'll preview the rest of the week. Earnings is of course a big focus for markets, but there's also some data and some central bank news to cover. So, let's get right into it. First, just talk broadly about the market here.

 

We had a rally on Monday early and then faded. News that Apple was going to slow hiring. We've heard a lot of these headlines, Quincy, that companies are slowing hiring. That makes sense. Heard some similar things from JP Morgan, from Alphabet/Google, a number of others. That's just prudent management, I think to slow down. Amazon is another one, right? So, but nonetheless, the market reacted to that. And we gave back Monday's gains, but we're rallying here on Tuesday morning, maybe getting back to where we would've been had Monday's highs held. So when, when you look at this chart, we're showing the S&P 500 Quincy, how much progress do you think we've made in terms of marking a low? Or is there just more work to be done here?

Quincy Krosby:

You know, I think, you know, we all say it's a process, right? No one knows when the low is in. I mean, we have indicators of how the market should react when a low is in. But, you know, history dictates that the bear lures you in, the bear has you think that the low is in and, you know, to come in. And by the way, markets can continue within the bear market to go up for, you know, 6, 7, 8 weeks, only to resume the selloff. Now, one thing that has changed, I think over the years is everything is much quicker than it used to be. Right? And here's the other thing, Jeff, we know what we're looking for, right? If you were to say to me what would be one thing in a headline that would get this market to turn around, it wouldn't be necessarily that the Fed says, oh, you know, we're worried about financial conditions that will let inflation rise.

 

I mean, that would be actually scary for the market, because it would suggest the Fed is prepared to see a stagflationary environment. But how about that we see concrete evidence, empirical evidence that inflation is receding at a faster pace than we originally thought. That I can almost imagine that the market would say, okay, enough of this. Let's just look ahead and so, you know, we saw consumer staples pulling back, flows going into consumer discretionary, just to give you an example and volume, strong volume with it, it would suggest to me that the market wants to say, okay, let's just look ahead. But right now, I do think though, you're seeing the market kind of, I don't know, does calming down, calming down. But isn't that always indicative also of bear markets? You get a market that, you know, will pull back a bit, add a bit, pull back a bit, and not that screeching selling that we saw earlier, that's a good sign.

 

Although some would say uhuh, Quincy, we need to see more of that. We need to see that final capitulation. You know, where everyone just says, I'm getting out regardless. So I'm just looking at this and I'm looking at valuations. And they are increasingly attractive. And at, you know, some point institutional money managers are going to say for the long term, let us take a look. But I would say, Jeff, we're looking at the second quarter earnings. Why not wait? Why not wait to get through with the big tech earnings? See what they have to say. After all, they represent a good portion of the S&P 500, and so we need to see how they're doing. But I think you're right. It's a process. We're going through the process and that's healthy.

Jeff Buchbinder:

Well, thanks, Quincy. LPL research did not wait, we just liked the risk reward enough that we did nibble at this market this month, right? So, we were pretty much neutral. Just a mild overweight. Now we took that up. But certainly, our bond portfolios are fairly conservative, and you end up with, I mean, we're just acknowledging that at least our view, we could be wrong, but our view in LPL Research is that maybe there's 5% downside. Yeah. Maybe even a little bit more. Yeah. But coming through this on the other side, yeah, we don't know when it's going to come, but there's probably 20% upside, maybe more you know, within a, you know, call it six-to-12-month period. History tells us that. And we certainly don't want to ignore what this.

Quincy Krosby:

No, but you know, also, Jeff, you know, regarding the inching market, you know, small cap, right? Small cap, the risk reward there is extremely attractive. Take a look at how small cap healthcare is doing. Small caps consumer staples, doing incredibly well, extremely attractive valuations. It was almost as if you can't go wrong with that, right? But you're absolutely right. Yeah. The list that's out there that you want to go into when you really push into the market that has been selling off is getting increasingly attractive.

Jeff Buchbinder:

Yeah, absolutely. One of the reasons that we think this market's may be worth nibbling at if people have the risk tolerance, is sentiment is so bearish. Yeah. We've got more evidence of that. You know, just today with the release of the latest Bank of America Global Fund Manager survey, which highlighted that fund managers are holding the most cash that they've had since 2008 and they're reporting frankly, risk appetite levels that are even lower than the 2020 lockdown COVID recession. And again, going back to sort of 2008 levels. So, when fund managers are that pessimistic, who's left to sell <laugh>, right? Not a lot of people are left to sell. And that certainly is an encouraging piece as we try to build this case for yeah, for a low. I want to make the point that, you know, having had hip surgery last week, I did not write "marking a bottom" intentionally, because I do not want to see the word bottom because sitting down does feel a little uncomfortable for me, <laugh>. So, we're going to mark a low and it's coming. But as you say, Quincy, and I agree, it's not clear that it's already in, we might get we might need to get one more wave of selling here. And then last thing, and I'll let you wrap up this segment, Quincy, you know, the 2000 tech bubble bursting kind of had, its face, right? It was pets.com or it was WorldCom and Enron, right? 2008 kind of had a face, right? It was,

Quincy Krosby:

It's a prime leverage.

Jeff Buchbinder:

Bear Stearns and then Lehman Brothers, right? Yeah. Mm-Hmm. <affirmative>, or maybe you want to add AIG into the mix mm-hmm. <Affirmative>, what's the face of this selloff? Put COVID aside.

Quincy Krosby:

Well, we know.

Jeff Buchbinder:

I don't think there is one yet and maybe there won't be, but that's that other piece of capitulation people are waiting for, right? I mean, the first thing that popped into my mind was, is this the Celsius selloff, right? The crypto lender that filed for bankruptcy. Yeah. No, I just don't know that that's enough of a face to say, you know, what? We're done. So, either this is a mild mm-hmm. <Affirmative>, I mean the selloff hasn't been mild, we're down 20%, right? Right. But either this is a kind of traditional correction type of event, and there is no face, or there's maybe a shoe to drop later, and we have a bigger name. I don't know who it would be, but we'd have a bigger name maybe that sells off. Corporate America's in such good shape that maybe there isn't one this time.

Quincy Krosby:

I think you do have a face. It's Jerome Powell's face. What you are alluding to, I think is an event, an event that hits the market, some sort of contagion. You know, financial conditions get tightened to the point that we do see a face, you know, but I think this is one of the reasons this has been fairly orderly. I think it's one of the reasons you haven't seen the VIX climb to those levels that you associate with a bear market or capitulation. You know, the VIX has been fairly, I would say sanguine given that we're in a bear market. Is that we know what's happening. We're not looking as we did in 2008 and 2009 for the old maid card. You know, who's got the subprime, which portfolio has it, and what was the leverage attached to that.

 

You know, you were waiting every day, who's got it? Who's got it? Until contagion just took over the entire system. Here we have an idea. And also absent some big events, some big shock. We know what we're waiting for. We know, I mean, everybody has to have a plan, right? Or as Mike Tyson said, until you're hit in the face. So, the plan is at this point, wait to see, watch the data and wait to see, as you say, it's beginning to look as if inflation and the supply chain beginning to ease, even at the margin. Okay? And this is absent an event that would get everything to stop and get a new face on there. So, right now, I see the face as Jerome Powell.

Jeff Buchbinder:

Yeah. That makes sense. The way I look at this is maybe we get an earnings relief rally here in Q3, and then maybe we get an inflation relief rally in Q4. We've said before, this is probably going to be a backend loaded kind of a year. Mm-Hmm. <affirmative> and certainly fourth quarter rallies during midterm years are very common and can be very powerful. So, let's turn to earnings. This is where I want to spend most of the time. The you know, the numbers so far have been okay, not great, but that's kind of what we expected, right? We know we have huge headwinds. We, you know, the economy has slowed. We have cost pressure on companies, the likes of which they haven't seen in decades, really. and then throw the strong dollar into the mix, which is really Yeah.

 

Accelerated lately as an earnings hindrance, right? Earnings obstacle, right? I mean, a 10% rally in the dollar could take off, call it three points on S&P 500 profits. I'll show you a chart of the dollar in a minute. These are really strong headwinds. So, everybody expects small beats, and that's what we've gotten ,2% beats in terms of the magnitude. Mm-Hmm. <Affirmative> on average. I mean, we're used to 8, 10, 12 right at this point. And then the beat rates, you know, we're used to 80% beat rates at this stage. Now we're at 60. This number's you know, 24 hours old. I think it's up to closer to 65 now based on the last 24 hours. Right? But still much lower than what we're used to. Not terrible. But we're still on track for 5% earnings gain. That's not bad given how tough this environment is. So, my question for you, Quincy, is you know, is the pessimism overdone? Could we get positive reactions? And I think we have so far to some extent, could we get the market's positive reaction to, you know, weaker numbers, lower guidance, and smaller beats?

Quincy Krosby:

Well, oh yeah, you can. You get it if it's not as bad as expected, you know how it comes in, at least it wasn't as bad as consensus estimates, then you'll get like an uptick. But overall, overall you know, companies are managing through this. I think that's the message from the S&P 500. I think it's going to be companies are managing through this. Now, I do have to say that if the backdrop continues to slow, they will manage through it. But we know how they'll do it. Labor is a major component and we will start hearing about more layoffs. The Fed has said, well, you know, we could go above 4%. You know, that's okay because it's still strong. But there are those who are fairly pragmatic thinking we could get an unemployment rate closer to 5% as companies work through it.

 

It's interesting. We talked about the dollar. At least today when we do this call, the dollar eased a bit. It may have something to do with the Eurozone, the ECB going to race rates. And I think the consensus is going to surprise that they may raise rates just a bit stronger. You wouldn't think it given the problems that they have right now, especially with Germany, the largest economy. But nonetheless yeah, it is amazing. I think if we went back to the 1970s, everyone likes to talk about inflation in the 1970s. Companies were not as quick to react. They didn't have the how do I say this? I don't think labor was important, but not as important as it is now. I mean, you are already hearing, by the way, the banks just, we just went through the bank earnings, right?

 

 

We'll get some more bank earnings some the regionals, the small banks, but already you're talking about the culling effect. You know, how you'll go to the end of the year, and you'll start to see culling, more layoffs, especially because capital markets are dormant right now. And many of them, the large banks obviously have a large investment banking arm that have just been dormant. So, you're going to see that. And also, Jeff, I think when that happens, it gives cover to other companies that want to go from hiring freezes to layoffs. If you've ever looked at it over the years, you get one large company that's considered to be a responsible company, they start laying off, others jump in. And perhaps just to be competitive too, obviously that's probably the major reason. So, that's the issue. But there's one thing about American companies, they move quickly, and I think that is what we're going to see if the economic backdrop deteriorates further.

Jeff Buchbinder:

Oh, yeah, absolutely. The Fed wants fewer job openings, right? You know, they certainly won't say they want layoffs, but they need the job market to cool. Yes. to solve this inflation problem. And so, some of this is really, I think just what the Fed would've expected based on Oh, yeah. The actions they're taking. So, yeah. So, that all makes sense. So yeah, I would say that this earnings season, the pessimism is a little overdone. Yeah. And we have a good chance at positive reactions to softer numbers. I mean, you can't turn on, you know, the financial news for more than five minutes, and you'll hear somebody saying that estimates need to come down. The stat I thought was interesting that I pulled to reflect the pessimism here is so far companies that beat on the top and bottom line, are up 2% percent.

Quincy Krosby:

Exactly.

Jeff Buchbinder:

On average. Yes.

 

The five-year average is 0.9%, right? Yes. This is from Evercore ISI. Yes. and then take that a little further. Different angle. Companies that miss on both the top and the bottom line. Mm-Hmm. <Affirmative> are higher by 1.6%. On average, they've been down 2.9%. So that's like, what is that? A four and a half percent beat on the historical average response. So, we're seeing some weaker numbers followed up by strong rallies. That is a very good sign that there's maybe too much mm-hmm. <Affirmative> pessimism. So, you know, the dollar is, Quincy, as you alluded to, is a challenge. It has come down a little bit today, but is up significantly off the lows. And this just translates directly into slower earnings growth. The market knows this. You can look at the dollar of course, every second of the day.

 

But nonetheless it's caused some companies to bring down numbers. Whereas maybe guidance would've taken numbers down a percent or two, typically. Maybe it takes it down, you know, add the dollar. Maybe we go down two or 3%, or three or 4% in terms of estimates. So, estimates are still too high. We'll agree with the consensus on that. And maybe they have to go down a little more than we had anticipated before this dollar surge. Mm-Hmm. <Affirmative>. But they're still holding up quite well here. And I'll show you a picture of that next. And then we'll move on to talk about inflation and some of the positive signs we've seen recently. We look at the S&P 500 forward estimates for the next well, you can look at next four quarters, or you can look at current year.

 

I think it's at this stage of the calendar it's helpful to look at just the current year. And you see here this chart, I mean, makes it look like numbers have come down, but this is a dollar, right? Mm-Hmm. <affirmative> from the peak, $230.40 to $229.40. They've held up incredibly well. Yeah. Despite the fact that everybody knows the economy has weakened. We all know about the challenges, certainly, that are facing the financial sector, which is a big earner. We've seen some big tech companies announce slower hiring or even in places some layoffs. And yet, and, you know, numbers are barely down. So, you know, you can interpret this one of two ways. You could say, well, the analysts are asleep at the wheel, right? And then, or you could say, and maybe they'll figure it out after earnings season. Or you could take the other side and say, there's some underlying strength here the market's not appreciating. And maybe 220 is too low. You know, a lot of analysts and strategists out there are thinking maybe 220 or lower for this year's S&P 500 profits. We're at 225. To me, the resilience of this estimate suggests that maybe that's possible. What do you think, Quincy?

Quincy Krosby:

Well yeah, I mean, one thing about the analyst community, just add to this debate on why we are not seeing, you know, more downgrades. Typically, they like to wait for the company to offer their own negative revision or, you know, pre-earnings announcements. And then they will come in. If it's negative, then they will come in and they will do the revision. They don't like to go in before the companies say something. I won't get into the debates as to why they will wait for their own personal relationships with these companies. But normally they do. But I agree with you. There is underlying strength and markets just get very pessimistic. And it's much more difficult to have even a shred of optimism when you are, you know, enveloped by pessimism, just like last week everyone was okay, Fed's going 100 basis points.

 

The Fed is going 100 basis points, and the next meeting afterwards will be a hundred basis. I mean, it was wild. And then the recession hit the headlines like this is it, absolutely recession. Then you had Christopher Waller come in who was not considered to be a dove. He's a member of the Fed board. He's not a dove by any means. He said like why don't we just hold on a little bit? Why don't we just hold on, wait to see where retail sales are? And he said, unequivocally, we're not in a recession right now. Now, you know, again, we get to the debate of two quarters in arow negative. And therefore, oh, it must be, let's not get involved in these discussions of if and what the NBER says, the two negatives.

 

And of course, then the concern is, oh, that means that looking ahead, companies are going to do much less well. So, you know, the prices have to come down at what, another 10 or 20%. That's the big question hovering over this market right now. So, you know, I think it behooves us to just listen. I'm, especially, I know you are, Jeff, about the big tech names. What are they going to say? That I think is going to be crucial? Because they have always come in and they have surprises to the upside every time they're written off, they come in and surprised to the upside. So, I think it's going to be very important to hear what they have to say for the mood of this market.

Jeff Buchbinder:

Absolutely. Absolutely. We get Netflix tonight, so that'll start the wave of the big techs. Yeah. So, let's move into our next segment, and then we'll wrap up with a preview of the week. The you know, again, the CPI number was terrible. But that might have been the peak. And I think some of this buying you've seen in the market since then might reflect the market's realization that that could be as bad as it gets. And so, we've seen a number of signs that suggest the inflation picture is getting better. So, here, I'll just run through mm-hmm. <Affirmative> a few really quickly. Right. And then I'll go to you, Quincy, but here's the long term. These are five year forward inflation swap rates from the TIPS market. So, the Treasury Inflation-Protected Securities market tells you what the market is pricing in, in terms of inflation.

 

It's come down from basically two six to two one in just the last you know, couple of months. That is a positive sign. There's also a University of Michigan survey where they ask people, you know, what are your inflation expectations for the next five years? And that is a very positive trend here. We've gone from three one to two eight. If we can get to two eight, that will be spectacular. Yeah. We'll get there eventually. We've seen oil prices drop over 20%. You all know that, you've seen prices at the pump go down 50 cents or so based on the AAA numbers. That is certainly very encouraging. This wasn't really captured much from the CPI number in June, that was reported in July. Mm-Hmm. <Affirmative> Copper too. People don't pay as much attention to copper. But look at this, down 32% from its recent highs.

 

Now there's a negative economic signal there that global growth is slowing, which of course why we call it Doctor Copper. But there is also a powerful disinflationary signal from a sharp drop in copper prices. You see the same thing in the Ag, even though Ukraine is a big ag producer mm-hmm. <Affirmative> prices there have come down. And then lastly, this is a little different. And then I'll hand it to you, Quincy, to mm-hmm. <Affirmative>, summarize this, you know, inflation, you can break it down into supply side driven and demand side driven. And we know you've heard from Jeffrey Roach on this, our Chief Economist, that the Fed can't really do much about supply side inflation. Right? It's, you know, bottlenecks at ports and, you know, shortages and materials to, you know, for semiconductors, right? It's China, COVID, lockdowns. It's all these things that the Fed has no control over, right?

 

Which are preventing us from making the stuff we need to make and to get it to the people that want it. There's another side to inflation, which is demand driven, right? Are people just demanding more products? Are people demanding more services? Right? And so, they are demanding more services, now. You know, if you tried to fly recently, there's more demand for you know, airline tickets and prices are going up. There's demand, you know, movies. I finally went to my first movie since the pandemic. Services, right? People getting out and doing things mm-hmm. <Affirmative>, the demand for that is increasing, but the demand you know, for goods is decreasing, because we bought too much stuff during the pandemic, and now we need less stuff. Okay? So that's just setting the stage. The key point here is that supply driven inflation has come down, okay?

 

And now the Fed can attack demand driven inflation. That's what the Fed has control over. And so, if you want, if we all want inflation to come down, but if you want to be optimistic about inflation coming down, you need to at least have, you know, the stage set for the Fed to do something about it. So, you can see from this chart for those watching on YouTube, that the demand driven contribution to inflation has actually slightly exceeded the supply driven component of inflation. This is good news. This means the Fed can actually have some impact. Mm-Hmm. <Affirmative>. So, you combine rate hikes, tightening financial conditions and you know, frankly, everything else market base that has helped kind of cool this economy. By the end of the year, this economy will be probably be cooled down quite enough to have a meaningful impact on inflation. So, Quincy, what there jumps out at you? Anything there you think worth highlighting?

Quincy Krosby:

Well, yeah. I mean, you mentioned China. Well, you, we just saw some numbers that we're seeing an outbreak again, in Shanghai, because all eyes had been on Shanghai, and the hope had been that Shanghai opens, it is a major, major manufacturing center, financial center. They've got a deep port. You want to see Shanghai back on board and working. And yet we're starting to see some COVID outbreaks. We'll see what the government does, whether or not they give it the usual zero-COVID lockdown. We just don't know. But the point is, we're also seeing out of China what are they doing to help growth. I mean, their numbers are weaker and weaker. President XI is under pressure. I know people say, oh, how can he be under pressure, that he can stay in that position, you know, forever, ever.

 

No, it's not necessarily the case. They do not want to see turbulence ever, especially after Tiananmen Square. But that's, you know, in terms of employment, that is something they don't want. And also, they don't want to see anything having to do with food prices going up because, or you go back and look at the causes of these just not just in China, but around the world and emerging markets of problems, social unrest, comes from the inflation in food prices. But, and unemployment. So, I'm mentioning this because, apparently, there are some infrastructure packages that China is prepared to introduce. Now, do they need any more infrastructure? Is this going to be, you know, the proverbial bridges to nowhere? It may be. But nonetheless, I think that when the market sniffs this out as a reality coming, you'll start to see the commodity industrial metals coming up.

 

Dr. Copper should, you know, is watching this very, very closely. In terms of food and getting back to what you said, Jeff, about, you know, the Fed, what it can do, it's very interesting that the Fed seems to me to be widening its view of inflation. If they were sticking to the script, it would just be about core. And in core it would be just about rents. Because rents have been sticky. You know, the headline in New York City, $5,000 for a small apartment, crazy. But nonetheless, they have more and more talked about headline. I don't know if you've noticed this. This is, I think, part of the Feds reaching out to the American people, saying we understand what you're dealing with. But what we're also seeing is on the supply chain side an easing, take a look at some of the Bloomberg indexes that they have.

 

They're showing that there is an easing in supplies actually normalizing. We heard, now this is not the be all and end all because it's a very small part of a larger series of data, but the Empire Fed, this is the manufacturing report that is New York, New Jersey, and Connecticut. It's certainly not emblematic of the rest of the country. That's why we're waiting for the Philadelphia Fed Survey coming out this week. But in that survey, we saw a tick up. So, the manufacturing in this Empire Fed Survey had ticked down. It has now ticked up again, but embedded in that shows that shipments are actually picking up, telling you that the supplies are coming in. That's actually very, very good news, and especially if we see it this week in the Philadelphia Fed Survey, needless to say, you know, in the Dallas Fed Survey, the Kansas City Fed Survey and so on, that would be, I would say, major evidence that the situation is normalizing, that the challenges are actually easing.

 

So that's one thing. And then in terms of oil and can't help but get this in. When we saw that read on the CPI of the 9.1% read on it, I mean, you know, we expected a higher number, consensus estimates was just below nine, but 9%. But when you see that nine there, it just says, oh my goodness, the Fed is just, you know, not doing its job. But here's the thing, that was for June. And so, we have seen oil prices come down at the pump. And therefore, I think that is one of the reasons also that we're seeing consumer expectations on inflation also coming down, because we know that gasoline prices, by the way, gasoline prices that are moving up and down, up and down, have a very strong effect on how consumers see inflation.

 

So, the more that they could come down, the more you're going to see inflationary expectations from the part of the consumer. After all, 90% of the economy is consumer spending, start to come down. I think in a more meaningful way, it's moving in the right direction. That's the message. It's moving in the right direction. Despite the 9.1% handle, it's moving in the right direction. You know, there's a tug of war between those who are suggesting that inflation has embedded itself so completely in our economy that it is becoming structural. And once you hear the word structural, you might as well substitute it with the word entrenched. Nonetheless, if this Fed is prepared to go all the way to bring it down I think they will be successful. You know, you mentioned portfolio managers and so on.

There's a question out there that they're asking portfolio managers. Now, if you had a choice between the Fed, just basically going not full, you know, full throttle on inflation, worried about financial conditions, tightening too much, something breaking, and then they stop short of bringing inflation down so they could declare a victory; versus that the Fed goes ahead and just keeps moving until they can say inflation has plateaued, inflation has peaked but there will be a recession, albeit a shallow recession, which would you prefer? So, they're giving portfolio managers two kind of nasty scenarios. Most say, look, go with the recession. Stagflation is far more pernicious for the economy. So, that's an interesting shift. That shift is taking place right now, that if in fact we have to have a recession, and I don't mean the two quarters in a row, but especially where the layoffs start picking up, I think that would be indicative coupled with retail sales pulling back. And portfolio managers seem to be more optimistic about that because what they believe is that will be indicative of the Fed determined to mute inflation, expunge it from the system.

Jeff Buchbinder:

Yeah. It's going to be tough for the Fed to know that we're in recession and continue to hike, but, we'll see. <Laugh>, I'm not going to make a prediction now. I mean, that's a tough call, but you're right, that's the debate that really I think everybody's having here. And we'll go a long way to determining whether this is the eventual low mm-hmm. <Affirmative> what we just put in June, or Yeah. Or we've got to go back and retest it, maybe late summer early fall. So, we're at time, so let's just go ahead and wrap up here, Quincy. You know, other than earnings this week, we've got a lot of housing data. We all know that the housing market is cooling. It's really one of the first places that you see what the Fed is doing.

 

translate into cooling prices, <laugh>. Right. And so, I mean, I know many of you in your local real estate markets haven't seen prices come down, but they'll probably, we're certainly going to see slower price increases. Mm-Hmm. <affirmative> and you saw the homebuilder's sentiment survey the other day reflect more dour sentiment from builders. We're going to see that, that's expected. That's not enough to drive us into recession, but of course, home ownership is has a big wealth effect attached to it. So, if prices are flat as opposed to rising that is certainly going to take a little bit of the consumer spending push out of the equation. The only other thing this week I think that's really meaningful besides earnings and housing data is the ECB that you mentioned, Quincy, and then the bank of Japan, right?

Quincy Krosby:

Yeah.

Jeff Buchbinder:

So, you know, maybe the Bank of Japan doesn't mean anything. Because we know what they're going to do. They're going to do nothing, and that's what they've done for 20 years. But <laugh>, the ECB might do 50.

Quincy Krosby:

It's amazing.

Jeff Buchbinder:

If the dollar moves lower, that could you know, that could help support international equities.

Quincy Krosby:

Exactly. That's exactly right. Speaking of housing, D.R. Horton's reporting, I'm going to be paying very close attention to their report, the call. They will lay out what is going on in the housing market and what they see in terms of foot traffic which has slowed, dramatically, cancellations, which has slowed dramatically or picked up dramatically, I should say. We'll get a good read on that. And may I add two things? I just want to add the Philadelphia Fed Survey because we want to see, again, are we seeing shipments pick up because that is how do I say it? A data point about the supply chain. So, shipments picking up and Philadelphia Fed, by the way, manufacturing port has more of a positive correlation with the heartland in this country, in terms of manufacturing, obviously, much more so than the Empire Fed survey.

 

Also, also, I follow the PMIs purchasing manager indexes. I think these reports are extremely important. At the end of the week, we will have a preliminary report, a flash report, on the manufacturing and the services. It will come from S&P Global, which bought market of those of you who follow this, but these reports are extremely important. It will be an up-to-date report. That's the beauty of a flash report. They're much more up to date and we want to see about orders, we want to see about hiring expectations and anything else they have to say about the cost of production, the input costs. We want to see those coming down.

Jeff Buchbinder:

Yep, absolutely. So, you know, maybe I undersold the economic calendar for the week.

Quincy Krosby:

Yes, you did, Jeff. Yes, you did.

Jeff Buchbinder:

But the flash PMIs aren't typically as market moving as the official PMIs in the U.S. but I agree, absolutely important data points that yeah, that data wonks like us pay attention to. Yes. But they maybe just don't get the TV ratings. So, thank you so much, Quincy, for thank you for jumping on again for another addition of Market Signals. Thanks to all of you for listening. I have just been told that we are going to take the next week off because we'll be at the national conference, the LPL Focus conference in Denver next week. And with all that's going on, just would be hard to pull off a podcast. So, you probably don't want to just hear me talking to myself, so we're just going to, I know you don't <laugh>, so we're just going to take next week off, the 26th and then the next LPL Market Signals will be in August. So, we'll be back with you. I think the date's August 2nd, be back with you for another edition of LPL Market Signals then. Thanks for listening. We'll see you next time.

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