Key Takeaways on Inflation, Fed Speakers, and Earnings Data

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 morning, November 11. This is Veteran's Day, and the bond market is closed today in honor of Veteran's Day. It's a busy week this week as we have an important read on inflation. This would be the CPI, the Consumer Price Index. And one of the issues for the market right now is whether or not the Fed feels comfortable in declaring victory on inflation. The statement that came out from the Fed meeting last week actually had a line in there about inflation suggesting, just suggesting, that there was still work to be done. And then Federal Reserve president of the Fed Bank in Minneapolis, Kashkari, made the comment that the Fed could still not declare victory over inflation. He said Inflation has not yet been completely vanquished.

Quincy Krosby:

So we're going to hear from many Fed speakers this week, and then perhaps they too will talk about whether or not they feel as if inflation is completely, you know, done and can they finally declare victory on it. The other issue though is what will we start to see in some of the data releases coming out? Will we see a, you know, spate of data releases suggesting that inflation is still lingering in this, what we call last mile, to the 2% level? Now, keep in mind too, the Fed does not wait for reaching 2%. What they want to make certain of is this. That we continue to see inflation coming down. That it doesn't turn around and start going back up. That it doesn't stay stuck or it is sticky and doesn't move again. That's really what they want. They're not going to wait until they get to 2%.

Quincy Krosby:

That's not how it's done. But again, if there is a question mark, you know, you're going to hear the Federal Reserve speakers this week, and there are so many of them come out and discuss it somehow, give their opinion on it. And the reason this is important, obviously, is that the market is waiting to see what happens in the month of December at the Fed's meeting in December. Does the Fed stay on hold or does the Fed continue with rate cuts? Right now in the fed funds futures market, we do see a rate cut coming, but it is not, in terms of the prediction, the forecast, it's not as solid as we would like to see that the Fed definitely is going to give a rate cut. The way we saw it last week, a lot is going to depend on these readings coming out on the CPI.

Quincy Krosby:

So not only are we going to have the Consumer Price Index this week, we will have the PPI, the Producer Price Index, right afterwards. And here's something that's extremely interesting is that the last couple of releases of the PPI, Producer Price Index, showed prices coming down, coming down at a steady pace. We'll want to see if it continues with that or do we see a tick up. And of course, the CPI. I also want to point out that the last report that we had on manufacturing from the Institute for Supply Management actually showed prices climbing higher in manufacturing in terms of the service sector, which by the way is the largest component of our economy. Within the service sector, there is a component for prices paid, and by the way, the prices came down and that's good news, but they remained elevated. So there's again, quite a bit for the market to dig into to make a determination itself is if the Fed is actually finished and can it declare victory on inflation?

Quincy Krosby:

This week also we are going to hear from the small business owners that today we're not going to have any data, but tomorrow, Tuesday, we will hear from the small business owners. This is their optimism index. The expectations are that it will tick just a little bit higher, and we always pay attention to what they have to say about inflation and what do they have to say about capital expenditures and new hires. This is going to be important because they represent, by the way, the strongest component for hiring in our country. So this will be important and will come out tomorrow. Also this week we are going to have industrial production and that's always important, but the other big important data release will come with the retail sales. And obviously this is important given that the U.S. consumer represents 68% of the economy. Consumer spending is that important.

Quincy Krosby:

Remember these data releases, especially the CPI and the retail numbers come before the election and the Trump victory. So we have to keep that in mind. One of the things that we've seen over and over again is that big expenditures, particularly from companies, but also from small business owners, and I suspect also from consumers with big important expensive, you know, purchases that they were waiting to see how the election was going to turn out. So we have to keep that in mind as well. However, we have seen strong retail sales numbers along the way, suggesting that the consumer feels confident enough to continue spending. And the link between consumer spending and the labor market obviously is extremely strong. And what do we see in the labor market? Actually it is solid, it's resilient, but as the Federal Reserve pointed out in the last meeting last week, including Chairman Powell's comments, they don't want to see the labor market cooling off anymore.

Quincy Krosby:

That's important. So this week, again, is going to be important. We'll also see whether or not we see any more indication that the Republicans are going to have a clean sweep with the House of Representatives. Awfully close, just short of a couple of seats. Technically, about four or five seats still up for grabs. We're going to have this week as well and continue with the earning season. And I'm paying attention to Disney. The reason I pay attention so closely to Disney is the various components of the Disney picture, but above all else, it is a very important picture about consumer spending and that's why I pay attention to it and the importance of consumer spending. Granted, we know it's expensive to go to Disney. Oh, we all know it personally, I believe, but we want to hear what the numbers tell us. And not only here, but what they tell us about the parks, for example, in Europe and in Asia.

Quincy Krosby:

And that will give us, you know, an indication of whether or not consumer spending is climbing there. Is it the same or is it coming in much lower? And also we're going to have Home Depot and, you know, I pay attention to that because we always get an interesting picture of what people are doing with their houses versus, and this is what's interesting, versus the construction workers who go shopping there and they're going shopping there for their customers. So that, I've always find that extremely interesting. And then obviously we will then hear from Lowe's and sometimes that's a different picture that it that gives us, you know, what are people doing with their own houses and are they getting it ready for the market or fixing it up for themselves? It provides an interesting breakdown of the retail home construction industry, not to mention, you know, a broader view of construction.

Quincy Krosby:

And then later on, not this week, but later on we will hear from Walmart and so on. The big, big retail enterprises. So again, this week is going to be extremely important for hearing about the inflation picture and also following the broader landscape in terms of the Trump victory. And also I have to point out taking a look in the market, continuing to discuss the effect that tariffs will have on inflation and on the deficit and all of the tax benefits, what that will, the effect that will have. But these are still unknowns and I want to point that out. Just because we hear what a candidate says out on the campaign trail doesn't mean that every item is going to be put into force or enacted right away. That's just not the way it works. But the reason we're paying such close attention to it again, is the effect that the analysts believe it will have on inflation.

Quincy Krosby:

And that's the reason it's becoming increasingly important because remember when President Trump came in the first time, inflation was down and down dramatically. Rates were down. Now that isn't the case. And the deficit, as everyone knows, is extremely large. And that was something that wasn't discussed on the campaign trail. So in any case, all of these are going to be important, but I do want to point out that we believe that there will be an agenda, but it's not going to be all at once. And perhaps it changes even at the margin and that would make a difference in terms of, again, the effect it will have on prices that we pay here in the United States as a result of the tariffs. So it's going to be a busy week, but please, let's all remember today, Monday it is Veteran's Day and how important that is for our nation. Take good care. Have a good week. We'll be back next week. Thank you so much.

Quincy Krosby:

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Quincy Krosby:

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