PCE, housing, earnings to inform the trading week

Monday, June 24, 2024

Now fully into the summer trading weeks, we expect the stock to move a little slower. We have some key economic data and even a few important earnings reports expected later this week, but nothing of note today – apart from some Fed speeches by Chicago President Austan Goolsbee, San Francisco President Mary Daly and Fed Governor Christopher Waller. One hour before the opening bell, the Dow was currently up +88 points, the S&P 500 was up +2 and the Nasdaq was up -20 points.

This week, the housing sector will hear several important reports. Both Case-Shiller Home Price Index for April on Tuesday and New and pending homes for sale for May on Wednesday and Thursday, respectively, will help draw some lines in this important segment of the economy. One of the main reasons why the Fed is reluctant to lower interest rates is that housing demand is still characterized by such pent-up demand, and lowering mortgage rates – which would likely be one of the effects of lowering the Fed funds rate – would likely lead to a new economic growth, increase in housing prices, which would contribute to an increase in inflation.

So with a wide two-month spread in home sales data, these reports may have additional significance. In the face of other inflation data over the last month, it is quite difficult to argue that an interest rate of 5.25-5.50% is too low or even in line with the needs of the economy. However, if we continue to see housing numbers climb up the wall of mortgage rates at 7.5% – which, by the way, is no longer that astronomical in historical terms – that could force the Fed to keep the funds rate at higher level than would otherwise be possible.

However, the biggest economic print this week comes out on Friday morning. It would be Personal Consumption Expenditures (PCE), the Fed’s preferred inflation rate. Both revenues and expenses are expected to grow slightly month-on-month, but pay close attention to year-on-year expectations: a forecast of +2.6% on both a nominal and fundamental basis year-on-year would be -10 points base rates (bps) lower in the case of the former and -20 bp in the case of the latter – which would obviously bring the Fed’s optimal inflation rate closer to +2% compared to what has been observed for years.

Our earnings calendar is small, but it does include some big names reporting this week. This starts after the bell rings FedEx FDX, which not only gives a clear picture of one of the best delivery companies in the world, but also gives us insight into what is happening with consumer demand in a more general sense. We act accordingly General Mills GIS on Wednesday morning and Micron MU after closure, z NIKE NKE continues to inform the consumer space.

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