Housing-Related Data, Key Earnings Releases, and Heavy Fed Speaker Calendar

Quincy Krosby:

Hello from LPL Financial. Welcome to the Talking Point. I'm your host, Quincy Krosby. Good morning everyone. This is Quincy Krosby. It is Monday, November 18, and this is the Talking Point. Thank you so much for joining me. This week, we have an abundance of housing-related data, everything from home builder confidence to existing home sales and everything in between. The expectations are, however, that actually we could see a little bit of a pullback in confidence, for example, or even housing starts. Remember, these numbers are also going to be factoring in parts of the country that experienced really heavy damage. So that ultimately by the way, is going to result in new building, but perhaps not showing up yet in these numbers. Although building permits, the expectations are that for the month of October, that's what we're looking for. We may see a pick up in building permits, but nonetheless, the biggest issue for the market, in terms of housing, has to do with mortgage rates.

Quincy Krosby:

And we saw mortgage rates start to tick up. Once they tick up folks start to wait and see if they start coming down and then jump right in once those mortgage rates come down. So, in any event, we'll start off this Monday morning about 10:00 eastern with the Homebuilder Confidence Index. The consensus estimates, remember that's all of the analysts pooled together and getting an average and having an average, is that it ticks down just a bit. Also, this week we are going to have an abundance of Federal Reserve speakers. I'll get to that in one minute. The other aspect to this market this week, just in terms of economic data, is the leading economic indicators. And we're going to pay attention to that. The expectations there is that we'll see a little bit of a pullback, but we want to see the overall sentiment.

Quincy Krosby:

What are folks saying, what do they think about the future? And I also want to point out too, that this week we will also have the Philadelphia Fed Manufacturing Survey. Now, why do I always look at this? Because manufacturing has been in a downturn. It's been difficult, every aspect of it, it has been difficult. And you could say, well, Quincy, it's not the biggest part of the economy. Certainly it isn't anymore, the service sector is, but it would be extremely helpful when we do see a bottoming in the manufacturing sector because it would add more jobs and it would be add to the health of the overall economy. Now, something we saw last week, actually, I had to look at it about three times to make sure I was seeing it correctly, and that was the Empire Fed Survey, which is a smaller survey. It's New York State, it includes some of the surrounding areas in in the states just around New York.

Quincy Krosby:

It popped higher, absolutely higher. And it was amazing and actually amazing. And this was important because the question is, is this going to be also what we're going to see in the Philadelphia Fed Survey? Right now, when I look at the expectations for the Philadelphia Fed Survey, it looks as though it's going to pull back. Well, let's see what happens. And the reason I always focus on the Philadelphia Fed Manufacturing Survey is this, it is usually a precursor to what we see in the heartland. It's typically had a strong relationship with manufacturing as we go deeper into the manufacturing belt within the United States. We're going to be looking for new orders, we're going to look for employment expectations, are we going to be hiring new employees, and we're also going to look for the prices paid in the New York survey, the Empire Survey, the prices paid,

Quincy Krosby:

the prices received actually held steady. It didn't mean that they escalated dramatically, but they didn't go down dramatically. We want to see what happens in the Philadelphia Fed Manufacturing Survey and that comes out on Thursday morning. So again, a host of housing-related data this week and a host and a parade of Fed speakers. What happened last week was extremely interesting, and that is Chairman Powell, Federal Reserve Chairman Powell, gave a speech in Texas and in that speech, he made a comment, it was deliberate. He wasn't just kind of speaking off script and he made the comment, well, you know, doesn't necessarily mean that we are going to have to cut rates again. I'm adding a little bit to this. He said, the economy is solid, solid growth. Things are okay. We, you know, it's not necessarily, it could be gradual approach. Well, this got the market a bit worried.

Quincy Krosby:

And why were they worried? Well, I think everyone on this call knows because the market has been expecting rate cuts, rate cuts toward the end of this year, which would be December and then again next year. But he basically gave the market a warning, don't expect rate cuts coming. And he didn't say, by the way, I want to make this clear. He didn't say we will not be cutting rates for the December meeting, but he made it clear that it could be that they do not, that they pause. Now, I want to point out what a pause is. A pause is just that. It means we could keep going with a rate cut, but we are just going to pull back a little bit and watch the data. What would be bothering the Fed chair? Well, it is the notion that inflation is coming down, but it is slower and that it is stickier.

Quincy Krosby:

That's very scientific, isn't it? That it's stickier and that you also are watching to see where it is headed. There's a view in the market that inflation bottomed in September and that it is beginning to tick up again towards the end of the year. The Fed is adamant that they do not, and you know, you see this in their previous speeches. They don't want a scenario in which inflation ticks up and they're still cutting rates. I mean, that is key. The other thing is, however, if the labor market were to cool off, in his words, cool off more than they expect, they will come in with rate cuts. There's no doubt about it. They've said it over and over again. Remember, they have two mandates, creating an environment of sustainable economic growth, that is price stability, that is inflation, and the maximum employment mandate, creating this environment of sustainable economic growth that is part of the maximum employment mandate.

Quincy Krosby:

So all of this together, all of this together suggests that the Fed, just like the market, is going to be very, very much focused on the inflation-related data. Now, the meeting for December is toward the end of December. We have many more data releases to go, but they're going to be extremely focused on where does inflation go? Are prices climbing higher? Now, people have always asked, by the way, well, what about the tariffs? Isn't that inflationary? And is that what the Fed is focused on? Well, not yet because no one knows exactly the amount of the tariffs. Again, how much is enacted, retaliatory measures from the trading partners and what that will mean for inflation? Remember, the inflation component of tariffs is this, that when you introduce tariffs, ultimately prices will rise for us, in this case the U.S. and those price rises will be inflationary.

Quincy Krosby:

Again, we don't know exactly what the new administration is actually going to do. And so, there's a question mark, but even without that, we see that inflation again remains sticky. In the last CPI report, again, it was rents, we know that, the owner's equivalency rent for the CPI, Consumer Price Index, it's about 30, 32% of that index. And it's what I can rent my house out for. It's what I can rent my condo out for. That's what counts. And it's difficult to have that come down quickly because leases can be more than just one year when you take out a lease. So that's one part. But we also saw two other things. We saw electricity rates climbing higher, and we also saw used car prices climbing higher. If you go back to this jolt in inflation, when we started to realize, some years ago, that inflation was rising, remember it was first used car sales prices climbing higher, and people were like, what?

Quincy Krosby:

What's going on there? But we saw an uptick in that. So, in any event, we are not saying that the Fed is holding off on a rate cut because Chairman Powell made it clear that isn't the case, but they want to be watching every data release to make certain that inflation is not beginning a tick higher. And we keep that in mind. The other aspect to this is, again, what do the Federal Reserve speakers have to say about this? We're going to hear from them this week and I think it will come up in their speeches. We already heard last week from the head of the Boston Federal Reserve Bank, and she said, well, you know, I could still see a rate cut. Doesn't mean that just because Chairman Powell mentioned it, doesn't mean we're not going to have it. She said, under the conditions we have, I could see a rate cut coming in December.

Quincy Krosby:

You know, if we see a spate of Fed speakers saying that, perhaps then the market will say, well, it looks as if maybe they're all backing a rate cut at the December meeting. So a lot riding on all these Fed speakers right now and what they have to say. The other thing I want to point out in terms of earnings, earnings have been coming in. Overall, 76% of the S&P 500 had been beating expectations for overall earnings and revenue growth. The combined. A little bit lower than expectations had been, but still solid, still showing resilience. And this week is incredibly important for the market for many reasons. It is the retail week. It is when we're going to have Walmart, we're going to have Lowe's, we're going to have Target. I'm focusing on Walmart because obviously it is the largest retailer. And what I want to hear from them is, are we seeing consumers going in and buying more than food?

Quincy Krosby:

Are they going into the, what we call the higher margin aisles? And are those Americans whom they pointed out during the worst of the inflationary period, those with household earnings a hundred thousand dollars or more, starting to go to Walmart? They were surprised. I forget when they mentioned it in one of their calls, that they're beginning to see that cohort. This was a while ago, again, when inflation was really hitting, and they started getting these folks coming into the store. I want to hear whether or not they say they're still shopping at Walmart. This'll be important because it will tell us that people with an income of a hundred thousand dollars or more still see the need to go in and get the prices that Walmart introduced for consumers. Lower prices across the board. Also this week is NVIDIA. Mm. And you know what that means?

Quincy Krosby:

That is the big news in the market. Now, I do want to add here, the expectations for NVIDIA are enormous, and that means then there's a bigger chance for them to disappoint. As I'm doing this call, there have been headlines that their new chip, the Blackwell chip, where, by the way, demand is supposed to be really strong and that would be a major positive for them in the earnings call and in the numbers. However, there was a quote unquote snag. And that snag has been that that Blackwell chip is perhaps causing a overheating problem in the servers. So this is something either NVIDIA comes out today before the earnings call, which will be November 19, and lets the market know, no, it's not a problem. Or the market has to wait for the actual earnings report and the earnings call to hear about it.

Quincy Krosby:

So this is going to be extremely important and it's going to be important by the way, for the hyperscalers because they're going to give us a sense, NVIDIA will, of how much they expect to see buying coming from the hyperscalers. Now what are the hyperscalers? They are the big magnificent seven. They are the Amazon, Meta, Microsoft, Google and so on. So that's something that we want to hear. What the analysts are saying, by the way, that we could see approximately 250 billion to 260 billion of purchases in 2025 for the new chip from NVIDIA. So it's going to be an important week because that one, everyone is waiting to hear from them. And again, with the valuations in the market, this is what we're looking at, 22 times forward earnings. And so the market is extended and we are by the way, in really the most hospitable period in terms of seasonality, November and December.

Quincy Krosby:

So maybe the market sells off a bit, which wouldn't be a terrible thing at all, paving the way for buyers to come in towards the end of November and December. So a lot for the market this week. And in terms of political news, the administration is naming every day their new heads of the Washington D.C. bureaucracy. However, right now there's a question mark on who's going to come in into the Treasury Department, who's going to head it? And boy, that is extremely important. We always talk about the Treasury Department in terms of the debt, in terms of auctions, in terms of what they have to sell, the funding for our enormous deficit. It is extremely important. And so apparently right now there are questions about whom they are going to nominate, and the market is absolutely waiting to hear who will be in that very important position for the United States economy really overall. So take care, have a very good week. We will be back next week. Thanks again so much.

Speaker 2:

This material was prepared by LPL Financial. It's for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principle. Any economic forecast set forth in the podcast may not develop as predicted and are subject to change. References to markets, asset classes and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance reference is historical and is no guarantee of future results. All information referenced in the podcast is believed to be from reliable sources. However, we make no representation as to its completeness or accuracy.

Speaker 2:

Securities and advisory services offered through LPL Financial, a registered investment advisor and broker dealer member RA and SIPC ensure its products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor, that is not an LPL affiliate. Please know LPL makes no representation with respect to such entity. If your a financial professional is located at a bank or credit union, please note that the bank or credit union is not registered as a broker dealer or investment advisor. Registered representatives of LPL may also be employees of the bank or credit union. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of the Bank of Credit. Union. Securities and insurance offered through LPL or its affiliates are not insured by the FDIC or N-C-U-I-A or any other government agency, not bank or credit union, guaranteed not bank or credit union deposits or obligations, and may lose value.