Have you ever slowed down for a while and thought, why do I run so fast all the time?
I visited a dear old friend this weekend in a place that runs much slower than my home city. As we visited, I saw how life worked for them: meals were never on the go, and even a casual and quick lunch was a moment. And they used the whole day — they woke up early, did a lot of activities, sometimes took naps in the afternoon, and stayed up late into the evening. Dinners out were spent savoring the company and the food, even if the server took a while to bring it.
While I know a long weekend trip usually doesn’t surface the cons of a nice place, it got me thinking about the speed of information and how it seems the markets never take a vacation.
This week we’ll get tons of relevant data, with 175 S&P 500 companies reporting results for the second quarter. In addition, the Fed meeting is today, Q2 GDP will be released tomorrow, and some June inflation numbers will post on Friday, such as the PCE1, the ECI2, and the Eurozone CPI. All in five days.
Taking the long-term view usually means what happens in a week doesn’t matter. BUT, I do feel this week and this coming month could be pivotal relative to what we’ve experienced all year — pivotal to inflation and Fed rhetoric, pivotal to corporate earnings expectations, and even pivotal on the recession discussion.
Why do I say that?
With so many companies reporting this week, I believe we could see expected earnings start to finally discount a less strong year than was expected at the start. With inflation likely peaking, this could be the last “aggressive” interest-rate hike from the Fed (they make their rate decision before the next inflation data points come out). If that’s true, the PCE should provide more evidence of peakiness. And if we see a negative GDP number (consensus is for +0.5%), we’ll be in a technical recession (defined by two negative GDP quarters in a row — and last quarter was negative).
One thing I have noted is that the “peak inflation” narrative feels more like consensus now. As in most things in investing, expectations are everything. This means that any data that shows inflation has peaked likely has a limited ability to move stocks higher. Stocks will probably need to see actual disinflation to be positively impressed by inflation data. That also says to me that any risks to higher inflation (like higher oil prices) will likely make a decent negative impact.
Like I said, it's a lot.
Don’t get me wrong, slowing down in favor of a long-term view is still right. But there are times when things are shifting so quickly that it’s helpful to pay attention, despite the fast pace and long-term goals. This week feels like one of those times.
So as much as I like to slow it down, I am personally better suited for the fast-paced efficiency of where I live — even if I love a good vacation and a good nap.
1.PCE = Personal Consumption Expenditure Price Index 2.ECI = Employment Cost Index