Earnings, Fed Speakers and Key Data Releases

Speaker 1:

Hello from LPL Financial. Welcome to the Talking Point. I'm your host, Quincy Krosby. Good morning everyone. This is Quincy Krosby. It is the Talking Point, and this is Monday morning, July 15th. The futures market is a poised for a positive open this morning, and I wanna point out that last night, that would be Sunday night when the futures market opens, it opens in the evening, it opened in positive territory. And there has been some questions, well, how is that possible given the events that we experienced? What happens is the market is very much controlled by algorithms and these algorithms have embedded history. And what they do is they make an assumption, a very quick assumption. And in these cases with a shooting that, is it a lone shooter or is there a conspiracy underpinning the shooting? And therefore there could be other shooters involved. The algorithms make this determination and they made the determination.

Speaker 1:

This was one lone shooter and that's why we were able to see the futures market open and PO territory. And today, this morning, the futures remain in positive territory. So I wanted to point that out. I also wanna mention something else that the markets and the algorithms, they have no emotion whatsoever, zero emotion. So we have to always keep that in mind. Sometimes it seems very coldblooded, but that's, that's the way that the markets function. In any case, the Republican National Convention opens and there will be tremendous focus on the convention itself and security updates and so on. But nonetheless, the market moves on and as I said, we're probably gonna continue the, the opening because the futures really look pretty solid in terms of in the green. There's an awful lot for the market to digest besides the activities that the Republican National Convention of who is going to be named the vice presidential candidate.

Speaker 1:

But what we have this week, the following, we have quite a bit of fed speak, that's what we call it, fed speak, F-E-D-S-P-E-A-K one word. And that's because after this week, the Fed goes into the blackout period before their July meeting. And so we have Chairman Powell speaking today on Monday, but we also have really a, a, I call it an onslaught of Federal reserve speakers. It's important because what we want to hear is do, do they agree with the market? 'cause The market is basically saying, Hey, you know what? We are gonna have a rate cut on September 18th and they want hear if there's any deviation from what the market has actually been projecting in terms of probability for a rate cut in September. There are those, I wanna point this out, who actually think maybe just maybe the Fed surprises the market and cuts rates this month in July at their next meeting.

Speaker 1:

And the reason behind that is following that the economic data releases have been weaker than expected, that the labor market is showing a tick up in unemployment. And that we saw two very important barometers and gauges of the economy. The ISM Institute for Supply management, ISM Purchasing manager index, PMI for manufacturing and the service sector, the largest portion of our economy, both contracting, we've known that manufacturing has been below that 50 line in the sand between pulling back, consolidate, contracting, and expanding. But we didn't expect to see the service sector also coming in below 50 in the headline number. And so again, there are those who suggest that maybe, and I'm gonna stress this, maybe the Fed surprises the market and comes in with a rate cut in the July meeting right now, the probability forecast or that we are simply not going to have a rate cut in any event this week.

Speaker 1:

We have obviously in the earning season quite a bit of earnings. I will just go over, if I may, the expectations are that the earnings are going to be positive this earning season. Remember we're looking at the second quarter. We look back, of course we look back, but the guidance is going to be crucial. Are they seeing a slowdown? Are they seeing, you know, their customers, whether they are retail customers or customers that come over from corporations and small business owners? Is that pulling back as well? Nonetheless, nonetheless, we have enough data coming in that will help us gauge whether or not we are seeing more of a slowdown. The fed speak is going to be important. Again, what Powell has to say, he's been pretty, you know, sticking to the script saying, look, we acknowledge that the data have been actually more positive in terms of seeing inflation coming down, but you know, we wanna be careful before we, we we have that first rate cut, but he was actually a little bit more dovish, I would say, personally, a little bit more dovish slightly when he was up on Capitol Hill.

Speaker 1:

The other thing I wanna point out too is this has to do with China. And I know we've become so focused on the us but China is the world's second largest economy. Their GDP latest GDP report came out, it was below consensus, it came in below 5%. And this is concerning because they do have a important role in terms of the overall global economy in terms of their demand, for example. So why also is this so important now, especially this week, because their third plenum is going to begin this week. It's supposed to begin today, July 15th. This is where they set their five-year plans. We expected this to occur actually a couple of months ago, and actually the end of last year in 2023, it comes about every five years. You've all heard of the communist five-year plans. This is it. And also it is a period in which of the third, it's called the third plen, all of the top top leadership in the communist party meet.

Speaker 1:

But it is where they sometimes surprise the market with really important announcements. And we'll see if we have that coming out this week, the market is certainly hoping to hear about more reform, hoping about a big fiscal plan, and a also a plan to get the property demise. The quagmire cleaned up, you know, we talk about this all the time, but remember it was about 25% of China's GDP. And it is, you know, pushing prices down, down, down in the property market. It has consumers very worried about what they own and whether or not there's still any wealth left in it, and consumers are holding back spending in general. So we're gonna hear whether or not this week any announcements that actually help the Chinese market. And then whether or not foreign direct investment can be positively affected by what they have to say in terms of, you know, reform.

Speaker 1:

So on, in any case, back here at home in the United States, besides the Fed speak, I want you to pay attention to what we hear from the Empire Manufacturing Survey, which is coming out this morning Monday. And also then during the week, we will hear from the Philadelphia Manufacturing Survey that'll come out on Thursday. The reason this is important is that we want to see any suggestion that manufacturing is trying to bottom. This is important. No one is expecting that these will be, you know, in positive territory, but the question is, are they stronger than they were last month? And especially the Philadelphia Fed Manufacturing survey because that has much more of a positive correlation with the manufacturing surveys across the country. Also, we, we wanna hear both from the Empire, which is the New York manufacturing survey and Philadelphia, what about prices? Are prices climbing higher or are they moving lower?

Speaker 1:

And we all know why that's important because we want to see whether or not inflation is coming back down and decreasing in the manufacturing sector also this week. And very important for the market, given our concern about consumer spending, we heard from a number of companies already that consumers are really pulling back, they are buying off brands. We heard that, for example, PepsiCo talking about that their consumers are pulling back and we're hearing it from a number of companies that consumers are just basically kind of fed up and saying, you know what, we're gonna hold back and we're gonna buy off brands and we may not be buying even that. So this is gonna be important because tomorrow, July 16th, US retail sales, and I just wanna mention that the consensus estimates are that that goes into negative territory. Please keep that in mind. This is something that is really important because the consumers, as they say over and over again, we are about 68% of GDP in our plus little bit more than $28 trillion economy.

Speaker 1:

Also this week we are going to have a number of reports on housing. We're going to have building permits, we're going to have housing starts. We all know why this is important. And by the way, given that the market expects that rates are going to continue coming down, what we've seen is that the home builders are getting a boost. So the, you know, this is important and we are hoping that the home builder confidence index, remember this is looking back, it's for July that has climbed higher expectations are that confidence has climbed higher. We're also going to have industrial production Expectations are that this has moved lower, not gone into negative territory, but moved lower. And obviously we all understand why this is extremely important. We'll get the Fed beige book also on Wednesday at two o'clock Eastern, and we do pay attention to this.

Speaker 1:

The reason is, it is anecdotal, but it is much more up to date than even all the numbers that we get that look back over a month. They're, they're, they're much more up to date. And whenever we are in what we would call an inflection point about the economy and we're worried about the economy or we're looking for green shoots, in other words, an economy is down and we're looking for any sign that the economy is poised to, to claim higher. The Fed beige book gives us a bit of a atmospheric about the regions in the United States in which the regional central banks go out and talk to business owners. They talk to large business owners, they talk to banks and they talk to the small business owners and they get a sense of what, how they see the economy progressing. And that's why I think at this point the Fed beige book is going to be important for, for the market.

Speaker 1:

In addition, we will have the US leading economic indicators. Expectations are that they will remain in negative territory, but less so we will see because they've been in negative territory for some time and we wanna see what they are attributing it to. Is it they, do they see more inflation over the long term or do they see that jobs are harder to get? This is really important for an assessment of the US consumer actually. And then also on Friday, a continuation of more fed speak. So it's an important period for the market. And besides all of that, we have a strong heavy calendar of earnings. And I wanna point this out, I've just chosen a couple of them that I'm gonna be watching JB Hunt transportation transports. I wanna hear what they have to say because there has been a worry about transportation. The Dow transports actually were up as the market, you know, climbed higher after the market, decided that the Fed is gonna cut rates in September.

Speaker 1:

But I wanna hear what they have to say about the economy, about what they are seeing from their own customers. So that's gonna be important. I wanna hear from United Airlines. Now I know they have issues with Boeing and so on, but following what Delta said last week, Delta was concerned, concerned about the lower wage earners because they have been having to discount those seats. Although they did say that business spending is still higher and that's good news. But they gave us a snapshot about basically, you know, having to, to get those seats filled, cutting the prices and having those who, you know, wanna travel but they don't wanna spend as much coming in. So that was a concern. Remember Delta in the previous earning season had extremely high expectations. Also, I wanna see what United Airlines has to say about what they see about the consumer.

Speaker 1:

On Thursday we get Netflix. You know, Netflix always was the precursor to the big tech coming in, not so much anymore. But nonetheless, it does give us a snapshot of consumer behavior, not just in the US now, but globally. Those, you know, coming in for new subscriptions and whether or not they are losing customers because there's pressure on on consumer, on the consumer in general. And then we will hear from American Express, and this is important for me in terms of listening to what they have to say about business spending because they very well known their cards for the business, the business community, and they have been positive. The last report that we had from the first quarter was that they are seeing a pickup in business spending. Are they seeing the same thing now? Do they expect a slowdown in business spending? Because that is a snapshot of basically corporate America tightening, tightening the purse strings.

Speaker 1:

We'll be watching to hear and see what they have to say. And then Halliburton, I mention Halliburton because energy prices have climbed higher, crude prices have climbed higher. Halliburton is one of the major companies that does servicing of all of the big energy companies. We wanna hear what they have to say because very often the service sector in general in the energy complex is a precursor to actually how the energy complex performance. So that is coming up. This is among many, many companies. As everyone knows, this is a big week for earnings. We will pay attention. We will pay attention to the guidance that they offer so that the market can try to make an assessment about corporate spending, about the health of C corporations especially. Do they see that they may be laying off more people. Remember there's sensitivity right now regarding the employment landscape and also what they see about consumer spending so busy week for the market. Not to mention again the focus on the Republican national convention. That opens up in Milwaukee with a focus on who is going to be the vice presidential candidate and on security. Thank you all very much. Have a good week. We'll be back next week. Thank you.

Speaker 2:

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Speaker 2:

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