Navigating Market Uncertainty: A Close Watch on Inflation Data and Earnings News

As we kick off the week following the July 4th holiday break, the financial markets seem to be settling into an uncertain rhythm. The high-profile nature of the mega-cap stocks is likely to dictate the market’s mood, following the noticeable weak finish on Friday. However, the broader market appears to be stuck in neutral as it remains on the fence.

Navigating Market Uncertainty: A Close Watch on Inflation Data and Earnings News

At present, the S&P 500 futures are down by three points, roughly in-line with their fair value. Meanwhile, the Nasdaq 100 futures have fallen by 27 points, trading 0.2% below fair value, and the Dow Jones Industrial Average futures are up by a meager seven points, also approximately in-line with their fair value.

There’s a clear lack of conviction, stemming largely from a wait-and-see attitude towards how the mega-cap stocks will perform post-Friday’s dip. This uncertainty was further fueled by CNBC’s report on Citigroup downgrading its U.S. market view from Overweight to Neutral, predicated on an anticipated pullback of the mega-cap stocks.

In contrast, Fundstrat’s Tom Lee offered a more optimistic outlook. In a recent CNBC interview, he predicted that the S&P 500 could rally 100 points following the June CPI report on Wednesday. Such a move, should it happen, would likely include the mega-cap stocks and provide a much-needed boost to market sentiment.

Lee’s view is tactical in nature and hinges on the prediction that the core CPI could come in at 0.2% month-over-month, or potentially lower. This could instigate a relief rally at the front of the yield curve, fueling a stock market rally. To note, the consensus estimate for the core CPI on Briefing.com is 0.3%.

The upcoming CPI report is a key focus this week, and for good reason. We saw how China’s June CPI remained flat year-over-year, contrary to an expected rise of 0.2%. More strikingly, the June PPI fell by 5.4% year-over-year, its fastest pace in seven years. These figures are stirring concerns of deflation, leading to speculation that China may soon announce additional policy stimulus measures.

Meanwhile, the market is looking past inflation data, with bated breath, towards the upcoming earnings reports from Delta Air Lines (DAL), PepsiCo (PEP), Fastenal (FAST), Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), and UnitedHealth (UNH) set to release later in the week.

This cascade of reports, starting on Thursday and continuing through Friday, marks the commencement of the June quarter earnings reporting period. According to FactSet, the second quarter blended earnings growth estimate is -7.5%. Although this figure echoes the most significant decline in earnings since the second quarter of 2020, it’s also crucial to acknowledge that the bar of expectations has risen considerably in anticipation of this reporting period, as mentioned in our last Big Picture column.

In conclusion, this week will undoubtedly bring a blend of data and reports that could shape market sentiment in significant ways. From inflation data to mega-cap performance and earnings news, investors and market participants alike will need to keep their eyes on the ball. After all, it’s these nuanced, often complex intersections of data and sentiment that make up the fascinating, ever-evolving tapestry of the financial markets.

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