Postcards from the florida republic:An independent and profitable state of mind.
Greetings from my daughter’s ballet class, where, as I’m writing to you, seven five-year-old girls are practicing tap dance.
So… that's the world’s most annoying sound…
If I can analyze the markets while this is happening, I can do anything.
The S&P 500 and Russell 2000 rallied yesterday after the jobs report showed fewer new positions than were anticipated. Wall Street analysts and former White House economists cheered the report, suggesting that a soft landing is again possible.
They seem to have missed two things. First, job growth was linked directly to people taking second jobs or working for the government - a drag on productivity.
Second, wage growth increased by 4.4%, more evidence that rate hikes alone won’t bring inflation down to the target. I’ve explained all week why the world's central banks, particularly the Fed, will fail in their mission. They need help with fiscal policy and supply-friendly regulatory policy.
They’ll receive neither from this Congress any time soon…
Maybe that’s why we saw an unusual dump before the closing bell.
The Week Ahead
Earnings season kicks off this week.
As I’ve explained, inflation could be a positive factor in nominal results this week. But plenty of new data could shake up sentiment in the wake of the June jobs report.
Let’s dig in.
On Monday, look for comments from Fed Vice Chair for Supervision Michael Barr. He’s set to talk about bank oversight and capital rules. Janet Yellen, the Secretary of the Treasury, has warned about the banking system's stability. If he issues any warning on Monday, it could reverberate across that sector.
On Tuesday, we’ll keep a close eye on the FAANG stocks. It’s Amazon.com's (AMZN) Prime Day pseudo-holiday. Get ready to buy a bunch of stuff you don’t need. The deals will be so low that you’ll wonder why you only bought six Firesticks and three robot dogs.
Remember: The purpose of Prime Day is to clear inventory. And even after they sell, Amazon won’t pay its vendors for 45 days. You’re giving Amazon an interest-free loan for six weeks at the vendors' expense. Buy directly from the vendors instead of from Amazon.
We’ll get the Consumer Price Index (CPI) for June on Wednesday. The average forecast calls for a drop to 3.0% from 4.0%. But core inflation is what matters. That’s still forecasted to sit near 5%, down from 5.3% in May. As I’ve noted, the bulk of inflation happened during the first half of 2022. So, we could see CPI start creeping back up if month-over-month increases moving forward are elevated. This factor is likely why the Fed recently raised the terminal rate to 5.6%.
On Thursday, the fireworks begin. We’ll get earnings reports from Delta Air Lines (DAL), PepsiCo (PEP), and Conagra Brands (CAG). OPEC will also release its monthly Oil Market Report, likely confirming Saudi Arabia’s intent to start cutting production aggressively in July and August. Finally, pay close attention to the testimony of FTC Chairman Lina Khan before the House Judiciary Committee. We might finally get some answers on antitrust and anticompetitive issues plaguing the U.S. economy.
Finally, on Friday, the banks will start reporting earnings. We’ll get quarterly reports from JPMorgan Chase (JPM), Wells Fargo (WFC), Blackrock (BLK), and Citigroup (C). There will be much movement on the Direxion Daily Financial Bull 3X Shares (FAS) and the Direxion Daily Financial Bear 3X Shares (FAZ).
At 10 AM Friday, look for additional market movement when the University of Michigan Consumer Sentiment Index emerges. We’ve already discussed that consumers are facing mortgage rates at 7.2%, high rates of food inflation, and an explosion in credit card debt. Various banks have noted that consumer excess savings will run out in Q4 2023 or early Q1 2024. Wage growth remains robust, and rates are heading higher. We’ll see how that’s shaking out in the psyche of the U.S. consumer very soon.
Keep your eyes open,
Garrett Baldwin
Florida Republic Capital (Available on Substack)
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.