Economic indicators could prompt bigger rate hikes, and 2 other things to watch in the market next week
New housing market numbers could influence a more aggressive rate hike from the Fed. Plus, earnings season intensifies and Bitcoin searches for a bottom.
Stocks are rallying Friday in an attempt to snap a four-day losing streak, with the Dow Jones Industrial Average (DJIA) surging more than 600 points. At the time of this writing, the Nasdaq Composite, S&P 500 and DJIA are all only slightly down for the week.
Stronger retail sales in June and improved consumer inflation expectations could be driving Friday’s bump, despite this week’s Bureau of Labor Statistics report showing inflation rose 9.1% last month.
As we look into the week ahead, here are three things to watch in the stock market that could affect your portfolios.
1. Economic indicators ahead of the next Fed meeting
We’re two weeks out from the next Federal Open Market Committee (FOMC) meeting, which is when the Fed will react to this week’s worse-than-expected inflation report. The market didn’t like the idea of a full-point rate hike, but a couple of Fed hawks said they still favored another 75-basis-point interest rate increase, according to Reuters.
Next week’s economic numbers will be important going into the FOMC meeting scheduled for July 26 and 27, for both investors and decision-makers.
The NAHB/Wells Fargo Housing Market Index is slated for release Monday. This monthly report provides a pulse on the single-family housing market.
The NAHB report is followed up by the US Census Bureau’s new residential construction report, due out Tuesday. This will provide numbers on building permits and housing starts and completions. May’s new housing starts came in 14.4% lower than April estimates and 3.5% below last year’s same month.
On Wednesday, the National Association of Realtors reports existing home sales for June. May numbers reflected declining home sales, another sign that the housing market has started to cool off.
Why is this data important?
Federal Reserve Governor Christopher Waller said he supports a 75-basis-point hike at the July meeting but that he’s open to a more aggressive move if the data warrants it.
“My base case for July depends on incoming data,” Waller said in remarks at an event in Victor, Idaho, reported by CNBC. “We have important data releases on retail sales and housing coming in before the July meeting. If that data comes in materially stronger than expected, it would make me lean towards a larger hike at the July meeting to the extent it shows demand isn’t slowing down fast enough to get inflation down.”
2. Earnings roundup
Earnings season ramps up next week, with the bulk of US banks reporting. Bank of America (BAC), one the biggest US banks, and leading brokerage firm Charles Schwab (SCHW) report Monday.
Banks were expected to thrive this year, as the Federal Reserve took to raising interest rates to tame historically high inflation. But fears that those rate increases would spark a recession has pulled bank stocks down instead.
On Thursday, JPMorgan Chase (JPM) reported second-quarter earnings that fell short of expectations. The company said it suspended share buybacks and built reserves of $428 million in case borrowers can’t make their loan payments going forward. JPMorgan Chase CEO Jamie Dimon said that, while the US economy continues to grow, dark clouds remain ahead.
“Geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road,” Dimon said in a press release. “We are prepared for whatever happens and will continue to serve clients even in the toughest of times.”
Next week, look for how other banks are preparing for a probable recession.
Meanwhile, tech companies Netflix (NFLX), Tesla (TSLA) and Twitter (TWTR) also report. Unfortunately, investors should prepare for more disappointment as inflation continues to rear its ugly head, and focus on comments about:
- Consumer demand
- Ongoing supply chain challenges
- The impact of inflation on margins
- The impact of foreign exchange rates on earnings
- Guidance for the rest of the year
Twitter investors will also obviously be wanting an update on the Elon Musk-Twitter saga. For those who haven’t kept up with the drama, Musk now wants out of the deal and Twitter is suing him to follow through with it. The lawsuit will be handled by the chief judge of Delaware Chancery Court.
Monday, July 18
Tuesday, July 19
- Ally Financial (ALLY)
- Interactive Brokers Group (IBKR)
- Halliburton (HAL)
- Lockheed Martin (LMT)
- Truist Financial (TFC)
- Hasbro (HAS)
- Netflix (NFLX)
- Johnson & Johnson (JNJ)
Wednesday, July 20
- Las Vegas Sands (LVS)
- Abbott Laboratories (ABT)
- Alcoa (AA)
- Baker Hughes (BKR)
- Kinder Morgan (KMI)
- Tesla (TSLA)
Thursday, July 21
- United Airlines (UAL)
- Alaska Air Group (ALK)
- American Airlines Group (AAL)
- AT&T (T)
- AutoNation (AN)
- Fifth Third Bancorp (FITB)
- Travelers Companies (TRV)
- Union Pacific (UNP)
- Capital One Financial (COF)
- Domino’s Pizza (DPZ)
- Quest Diagnostics (DGX)
- Dow (DOW)
- DR Horton (DHI)
- Freeport-McMoRan (FCX)
- Philip Morris International (PM)
- Snap (SNAP)
- Mattel (MAT)
- SVB Financial Group (SIVB)
Friday, July 22
3. Will Bitcoin confirm a bottom?
The price of Bitcoin (BTC) is bouncing around the $20,000 level, and has been for about a month. It’s a key support level for the digital coin that’s down about 70% from its record high of almost $69,000 — one that, if broken, could send prices to around the $12,000 mark before finding further support.
Some say a bottom is forming. Others think that unless the short-term macro environment improves, further downside is likely. And recessionary fears seem to only be heating up.
Inflation is getting worse, which means the Fed will have to keep its foot down on the pedal and continue to rapidly raise rates. Fears of a deeper market downturn will keep many investors from buying risky assets like crypto and trigger some who are still in to liquidate their positions, further escalating the selloff and the crypto market crash.
If Bitcoin can bust through the $22,000 resistance level and continue to form higher lows, bulls might have a chance. But if the current macroenvironment doesn’t improve and big crypto players continue to falter, so too will investor confidence.
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At the time of publication, Matt Miczulski owned BTC and shares of TSLA, HAL and BKR.
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