Week Ahead on Wall Street: An Economic Beef Wellington

Coming Home to Roost

Imagine you’re a chef at a restaurant and someone orders beef Wellington, a complex dish that some consider to be one of the toughest to get exactly right. There’s the pastry, the duxelles, and of course the meat. A lot can go wrong in the preparation of the dish, while the path to nailing it is narrow, especially in the home stretch when it’s baking in the oven and you can’t see when it’s perfectly cooked.

A balanced economy is sort of like a beef Wellington, the Federal Reserve is our chef, and monetary policy (i.e. interest rates) is the Fed’s oven. Just as the chef cannot tell just by looking when the Wellington is ready to be taken out of the oven, the Fed can’t immediately see the full effects monetary policy has had on the economy.

The Fed aggressively raised interest rates in 2022 and 2023 to fight inflation, and at first it didn’t seem like much was changing. The labor market and economic growth remained robust, but that doesn’t mean the economy wasn’t changing.

The delay between the Fed’s actions and visible effects on the economy is what economists refer to as “long and variable lags”. Just like different parts of the Wellington cook at different speeds, different parts of the economy respond differently to changes in interest rates. And because the structure of the economy is always changing, the Fed might have an even tougher job than the restaurant chef.

However, the long and variable chickens might be finally coming home to roost: The gap of 4.9 million between job openings (i.e. labor demand) and available workers (i.e. labor supply) that opened up during the pandemic has completely disappeared, the unemployment rate has risen from 3.4% last spring to 4.3% in July, and inflation has slowed significantly in the second quarter. And because it takes time for the effects of monetary policy to come through, there might be even more economic cooling to come. The Fed hopes it got its timing right, but the only way to know for sure is when the Fed takes the economic dish out of the interest rate oven.

Economic and Earnings Calendar

Monday

•  July S&P Global US PMIs: These indexes track how purchasing managers across different industries feel about the business environment.

•  July ISM Services PMI: This index from the Institute for Supply Management tracks how purchasing managers across different services industries feel about the business environment.

•  Senior Loan Officer Opinion Survey: This is a quarterly survey of large domestic banks, as well as U.S. branches and agencies of foreign banks, on bank lending practices and loan demand.

•  Fedspeak: Chicago Fed President Austan Goolsbee will appear on CNBC’s Squawk Box. San Francisco Fed President Mary Daly will participate in a moderated discussion on monetary policy and the economy.

•  Earnings: CSX (CSX), Diamondback Energy (FANG), Realty Income (O), ONEOK (OKE), Simon Property Group (SPG), Tyson Foods (TSN), Williams Companies (WMB)

Tuesday

•  June Trade Balance: Trade, made up of exports and imports, is an important driver of economic activity.

•  Earnings: Airbnb (ABNB), Assurant (AIZ), Amgen (AMGN), Axon Enterprise (AXON), Baxter International (BAX), Builders FirstSource (BLDR), Broadridge Financial Solutions (BR), Caterpillar (CAT), Constellation Energy Co (CEG), Duke Energy (DUK), DaVita (DVA), Devon Energy (DVN), Expeditors International of Washington (EXPD), Fidelity National Information Services (FIS), Twenty-First Century Fox (FOX), Fortinet (FTNT), Henry Schein (HSIC), IDEXX Laboratories (IDXX), International Flavors & Fragrances (IFF), JACOBS SOLUTIONS INC (J), Kenvue Inc. (KVUE), MarketAxess Holdings (MKTX), Mosaic (MOS), Marathon Petroleum (MPC), Super Micro Computer (SMCI), Sempra Energy (SRE), STERIS (STE), Molson Coors Brewing (TAP), TransDigm Group (TDG), Trimble (TRMB), Uber (UBER), Vulcan Materials (VMC), Wynn Resorts (WYNN), YUM! Brands (YUM), Zoetis (ZTS)

Wednesday

•  June Consumer Credit: Borrowing activity gives insight into broader economic activity.

•  Weekly Mortgage Applications: Mortgage activity gives insight on demand conditions in the housing market.

•  Earnings: Atmos Energy (ATO), CF Industries Holdings (CF), Corpay (CPAY), Charles River Laboratories International (CRL), CVS Health (CVS), Disney (DIS), Emerson Electric Co (EMR), Equinix (EQIX), Global Payments (GPN), Hilton Worldwide Holdings (HLT), McKesson (MCK), Monster Beverage (MNST), Marathon Oil (MRO), NiSource (NI), Occidental Petroleum (OXY), Ralph Lauren (RL), Rockwell Automation (ROK), Bio-Techne (TECH), Warner Bros. Discovery, Inc (WBD), Zimmer Biomet Holdings (ZBH)

Thursday

•  June Wholesale Inventories and Sales: Wholesalers often operate as an intermediary between manufacturers and retailers, serving as a key part of the goods supply chain.

•  Weekly Jobless Claims: This high frequency labor market data gives insight into filings for unemployment benefits. Jobless claims have continued to show a labor market that remains strong despite having cooled.

•  Fedspeak: Richmond Fed President Thomas Barkin will participate in a National Association for Business Economics webinar.

•  Earnings: Akamai Technologies (AKAM), EPAM Systems (EPAM), Expedia Group (EXPE), Gilead Sciences (GILD), Eli Lilly (LLY), Martin Marietta Materials (MLM), NRG Energy (NRG), News (NWS), ViacomCBS (PARA), Parker-Hannifin (PH), Insulet (PODD), Solventum (SOLV), Take-Two Interactive Software (TTWO), Vistra Energy (VST), Viatris (VTRS)

Friday

•  Earnings: Evergy (EVRG)

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