This is a decisive week for interest rates. Here's what's coming.
At a Glance
• The news: The July Consumer Price Index (CPI) and Producer Price Index (PPI) reports drop this week, followed by updates on retail sales and consumer sentiment.
• The context: Inflation remains above the Federal Reserve's 2% target, and another hot reading could push the central bank to raise interest rates.
• Your move: Keep a close eye on core inflation readings. An upside surprise would likely cement market expectations for an interest rate hike at the Fed's September meeting, potentially weighing on interest-rate-sensitive assets like growth stocks and REITs. For those looking to manage volatility, some options are short-term Treasurys, investments in defensive sectors such as Utilities, or even put options to protect on the downside.
Headline consumer inflation figures will probably dominate most headlines this week, but Wall Street will pay closer attention to the core and supercore measures. These strip out components that tend to be more volatile, in order to try and isolate the underlying inflation trend. Will the data show a second straight month of cooling, or are price pressures going to intensify again? Expectations are leaning toward the latter, but any major surprises could shake things up dramatically.
The PPI release will complement that picture by offering a look at what businesses are seeing, often serving as a leading indicator for where consumer prices might be headed. Tame data here could help give confidence that though the overall inflation progress has been stagnant, it wouldn't necessarily be getting worse, either. Though if input costs surge, the stock market could be in for a tough time.
Rounding out the week, Friday will give some more insight on the American consumer. Retail sales will show how household spending is holding up, while the University of Michigan's preliminary August Consumer Sentiment survey will give us a fresh read on America's thoughts and feelings about inflation. A surge in inflation expectations would be fuel for the Fed's rate hike fire.
On the Docket
Monday
• Earnings
◦ Large & Mid-Caps: Simon Property Group (SPG), Ferguson Enterprises (FERG)
Tuesday
• 6:00am ET | July NFIB Small Business Optimism: This measures how small business owners feel about current and future economic conditions.
• 8:15am ET | ADP Weekly Employment Change: This survey offers insight into weekly private sector employment trends.
• 10:00am ET | July Existing Home Sales: Most home transactions in any given month tend to come from the existing market, and as a result set the tone for the broader housing market.
• Earnings
◦ Large & Mid-Caps: Lumentum Holdings (LITE), Cardinal Health (CAH), Super Micro Computer (SMCI)
Wednesday
• 7:00am ET | Weekly Mortgage Applications: Mortgage activity gives insight on demand conditions in the housing market.
• 8:30am ET | July Consumer Price Index: The CPI is one of the most popular indicators for tracking consumer price trends and is a marquee release for market watchers.
• 2:00pm ET | July Treasury Statement: This summarizes the U.S. federal government budget by tracking government revenues and expenditures.
• Earnings
◦ Mega-Caps: Cisco (CSCO)
◦ Large & Mid-Caps: Coherent (COHR), Amcor (AMCR), Trimble (TRMB)
Thursday
• 8:30am ET | Weekly Jobless Claims: This high-frequency labor market data gives insight into initial and continuing filings for unemployment benefits.
• 8:30am ET | July Producer Price Index: The PPI tracks price trends that producers face and is down significantly from its peak earlier in the cycle.
• Fedspeak: Cleveland Fed President Beth Hammack will take part in a moderated Q&A at the Dayton Area Chamber of Commerce's Government Affairs Breakfast series. Richmond Fed President Thomas Barkin will discuss the economic outlook and monetary policy at an event hosted by the Greenville Chamber of Commerce.
• Earnings
◦ Mega-Caps: Applied Materials (AMAT)
◦ Large & Mid-Caps: Tapestry (TPR)
Friday
• 8:30am ET | July Retail Sales: This measures spending at retail stores and is a key indicator of consumer demand.
• 10:00am ET | August University of Michigan Consumer Sentiment: Consumer feelings about economic conditions affect their spending habits. This survey places a particular focus on inflation and its trajectory.
Note: Companies with at least $200 billion in market capitalization are classified as “Mega-Caps,” while others are shown in the “Large & Mid-Caps” sections.
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