After a stellar first six months for equity investors in 2023, expect stock markets to turn volatile this month as earnings season will kick off shortly.
This week marks the beginning of the earnings season, with a host of leading banks and financial institutions, including JPMorgan Chase (NYSE: JPM), Wells Fargo (NYSE: WFC), Citigroup (NYSE: C), and BlackRock (NYSE: BLK), set to release their reports. The subsequent week will feature reports from Bank of America (NYSE: BAC), Morgan Stanley (NYSE: MS), and Goldman Sachs (NYSE: GS).
Additionally, we can anticipate earnings announcements from other industry bigwigs such as UnitedHealth Group (NYSE: UNH), Delta Air Lines (NYSE: DAL), and Pepsi (NASDAQ: PEP) in the next five days.
According to research from FactSet, S&P 500 companies' earnings are estimated to have dropped by 6.8% in Q2. It represents the most severe dip since the advent of the COVID-19 pandemic and appears bleaker than predictions from a few months back when analysts forecasted a 4.7% drop towards the end of March.
Breaking down the company guidance, 67 have issued negative predictions, while 46 have come out with positive forecasts.
June inflation report and interest rate hikes
On Wednesday, the spotlight will be on the latest inflation data with the unveiling of the June Consumer Price Index. Expectations point to a 0.3% rise in consumer prices for the past month. On an annual basis, they've increased by 3.6%, down from 4% in May.
Core prices, sidestepping the fluctuations of food and energy costs, are expected to have climbed 0.4% since May and 5.2% from the same period a year ago.
On Thursday, attention will shift to the Producer Price Index (PPI), offering a glimpse into inflation from the perspective of manufacturers and wholesalers. Estimates suggest producer prices ascended 0.2% last month, following a 0.3% dip in May.
It likely reflects a modest 0.2% uptick from last year, representing the slightest annual gain since September 2020 and contrasting starkly with the peak of 11.7% observed in March of the previous year.
Will Treasury yields increase this month?
Investors are closely monitoring the 10-year Treasury yield as it climbed on Monday. At the same time, they keenly anticipate upcoming statements from U.S. Federal Reserve officials and pivotal inflation data slated for release this week.
The benchmark yield saw an uptick of over two basis points, registering at 4.07%. On the flip side, the 2-year Treasury yield took a slight step back by approximately one basis point, hovering around 4.923%. As the rule goes, yields and prices display an inverse correlation, and a single basis point represents 0.01%.
This week brings numerous Fed speakers to the stage, whose discussions will be carefully parsed by investors for any new hints about the future trajectory of interest rates. The line-up for Monday includes Cleveland Fed President Loretta Mester and San Francisco Fed President Mary Daly, who are both likely to address the current economic and monetary policy landscape.
Despite a marginally softer than projected growth in non-farm payrolls in last week's June jobs report from the Labor Department, the central bank is widely anticipated to implement another rate hike in its upcoming meeting this month. The report also highlighted a stronger-than-predicted annual wage growth of 4.4%.
While the Fed maintained a steady course with interest rates in their latest meeting, signs from policymakers suggest a need for additional rate hikes to edge inflation closer to their 2% target band. This indicates that we could see several more rate boosts during the remaining four meetings scheduled for this year.