Weekly Review – Earnings Has Begun!

What Happened: Inflation Rate Beats Expectations and Higher Jobless Claims

What Does it Mean???

On Thursday, CPI (Consumer Price Index) came in 0.1% higher than expected with the year over year inflation sitting at 2.4%. In recent memory, a higher than expected CPI has led markets lower with the expectation that the FED may keep interest rates high to fight further inflation. However, we did not see the markets move much at all, just slightly down on the day. This could be due to the other numbers we received on Thursday: higher than expected jobless claims. Also, Friday morning we got PPI (Producers Price Index) data that came in below expectations with no price increase month-over-month. In our opinion, these numbers seem to be indicating the market is much more focused on the health of the overall economy and not as worried about potential inflation.

Why Do We Care??

Although we do see risks of inflation due to the increased conflict overseas and the hurricanes that have devastated parts of our country (Quint wrote about both of these in last week's newsletter HERE), the market seems to have shifted its view to “will the FED be behind in cutting interest rates”. The initial jobless numbers being 29,000 over expectations with a portion of that being caused by the hurricanes does not necessarily mean the jobs market is really struggling. However, this news along with layoffs at major companies like Johnson & Johnson, Pfizer, and Bayer is something we are watching closely to see if those numbers continue to trend higher. We believe there are bigger issues under the surface of the overall economy that the FED is not putting as much weight in that we think could be cause for concern down the road. So, although this does not mean we have two outs left in the 9th inning, we believe it could be a recipe for bigger issues down the line.

What Happened: JPMorgan Chase tops estimates for profit and revenue

What Does it Mean???

We have officially entered earnings season. This week has kicked off some of the bigger players with banks like Wells Fargo and JPMorgan Chase (JPM) announcing their quarterly earnings. JPM beat on their earnings and revenue numbers this past quarter. What did they cite as one of the important reasons for their successful quarter? Growth in credit card loans.

Why Do We Care??

With the FED not having another meeting until November and most of the key economic data out of the way for the month, the headline market focus will likely be earnings season (barring any further Middle East Conflict). Quarterly earnings that companies put out give us insight on how an individual company did over the previous quarter and what they expect moving forward. However, it also gives us an idea of potential trends that are forming and what is going on in both the stock market and economy as a whole. One of the important things we will be watching this earnings season is how companies that have spent so much on Artificial Intelligence (AI) technologies are implementing this new tech and how it could potentially help the bottom line.

The other is how companies are forecasting consumer spending and what they are seeing from the possibility of a future slow down. Debt remains the number one concern we have for our government, the consumer, and the economy moving forward. We have seen over the last year credit card debt trending higher on the consumer side. We think more and more Americans are spending funds they likely do not have to keep up a post-COVID lifestyle that was supported by stimulus checks, large company bonuses, and continual raises. Those raises, bonuses, and stimulus checks are gone or slowing down significantly and as a result more money is going on the credit card. In our opinion, all is fine while the jobs market is still very strong, but if we continue to see layoffs and unemployment rises there could be large defaults in the credit card industry. We believe this ultimately can cause Americans to tighten up spending, businesses to bring in less revenue, and you see the potential dominos that lead to an economic slowdown.?

To keep up the sports references, after the last couple of years it feels like we are up 28 – 3 in the third quarter. However, the other team seems to be rallying, and we have to watch our back.? Although we do not feel that the game is already lost, there are some concerns on the horizon that we are looking out for. The market is still strong, we are still in an election year, and we believe there is potential for a Santa Claus rally after the election season is over, but we are keeping a leery eye on some of the economic concerns under the surface.

Have a great weekend.

- Logan Gilland CFP?

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