Taking A Pause: Earnings, Data Keep On Rolling, Hectic Pace Could Ease

(Monday Pre-Market) The coming week might provide a refreshing change for any long-term investors who’ve had their fill after gorging on last week’s banquet of a Fed meeting, a payrolls report, and the constant background noise of earnings.

While earnings continue to roll along in the days ahead, fewer of the really big names report, aside from Walt Disney Company (NYSE:DIS) after the close Tuesday. For anyone counting, we’re about 80% of the way through earnings season. Hopefully long-term investors checked their portfolio allocations at mid-year, made necessary adjustments, and feel comfortable not watching every headline during this busy time.

Also, investors continue to digest Friday’s payrolls report, which looked better than the headline number of 157,000 jobs created in July might have some people believe. The government said the economy is averaging 224,000 new jobs a month over the last three months. That’s way above what’s needed to keep up with population growth.

There’s really not much to complain about with earnings. They’ve been mostly solid, with a few notable exceptions. So far, 79% of S&P 500 companies have beat on EPS and 73% on sales. Those figures look strong compared with the historic trend.

The market is likely to continue to trade on earnings until the season is over, unless there’s proof that something else is happening. That something else could be a geopolitical flare-up, a major tariff decision by either China or the U.S., or perhaps something unknown now. After earnings season wraps up, focus might begin turning toward the next Fed meeting in late September and the rumble of the U.S. midterm elections in early November.

Though the week begins with a bit of quiet on the data front, that changes Thursday and Friday when investors get a look at July producer and consumer prices, respectively. Recent price-related data, including the payrolls report and Personal Consumption Expenditure (PCE) prices, arguably didn’t show too much to worry about as far as inflation.

However, the June producer price index released last month did raise some concerns, with prices up 3.4% year-over-year. That was the biggest jump since 2011. Investors might want to keep an eye on the July report Thursday, and for any signs that companies might start passing along price increases to consumers.

All of this, along with Friday’s payrolls, is probably getting a close look from the Fed. Speaking of which, there’s now a 93.6% chance of a Fed rate hike by the time of next month’s meeting, according to CME Group (NASDAQ:CME) futures. That’s up a little from a week ago. So it seems that nothing in the payrolls report really changed investors’ views much about the chances for a near-term move. Chances of a fourth hike by the end of the year reached around 70% at the end of the old week, and some analysts expect the Fed to keep moving ahead with rate hikes steadily next year. That’s pretty much in line with the Fed’s latest “dot chart,” which will be updated next month.

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If these rate hikes are slowing the economy, it’s hard to find evidence yet. The Atlanta Fed’s GDP Now indicator currently predicts 4.4% U.S. economic growth in Q3, up from the government’s estimated 4.1% Q2 GDP. The GDP Now number was even higher earlier last week, reaching 5% but then falling back on signs of slower real consumer spending growth and real private fixed investment growth.

It wouldn’t be all that surprising if the drumbeat of geopolitics continues in the coming days, and lately it seems like every time there’s another tariff headline the markets turn lower. However, stocks remain near their all-time highs, and have been bouncing back pretty quickly after trade-related losses. Also, volatility has been waning in recent days, with the VIX falling below 12 by late Friday.

As far as companies and the impact of tariffs, it’s interesting to see that of the 70 S&P 500 companies that mentioned tariffs so far on their earnings calls, 24 are in the industrials sector, according to FactSet. Multinationals like Boeing (NYSE:BA) and Caterpillar (NYSE:CAT) remain potentially vulnerable to tariff developments, and the big population of such companies in the Dow Jones Industrial Average may have been one factor sometimes pressuring the DJI vs. other major indices recently.

FIGURE 1: Gold Dust: Over the last month, gold (candlestick) has been under pressure as both the dollar (purple line) and the 10-year Treasury yield (blue line) have climbed. Data Source: ICE (NYSE:ICE), CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.