Last week’s data was more or less in-line with my expectations; excluding the stronger than anticipated manufacturing numbers. However, for the reasons I outlined in my previous posting, considerable downside risks remain in place for the ISM over the coming months. Friday’s lower than expected payroll data combined with deteriorating jobless claims has likely convinced the vast majority of investors that the US is in the midst of a recession. This is probably good news for equity markets, especially in terms of reducing volatility. The fact that it is widely agreed the US is in a recession should remove a level of uncertainty from the market. Investors will begin analyzing data to determine the length and severity of the recession, and not whether or not a recession will occur. I believe this should help reduce market volatility around data releases which demonstrate slight deviations of actual vs. consensus forecasts. To put it simply, you expect to see negative data during a recession… (Just not too negative)
Additionally, it appears the market has mostly accepted the fact that the Fed is near the end of this rate cut cycle. This means the market should not be as concerned about indicators, such as CPI, effecting potential future rate cuts. However, if Core CPI and/or Core PCE were to rise drastically (+3.0% yoy) a situation could arise where the Fed contemplates increasing rates, but this scenario is unlikely in the short term.
The upcoming week will be relatively quiet in terms of economic data (Consumer Credit on Monday, Claims and Trade Balance on Thursday, and Import Prices and Consumer Sentiment on Friday). However, this week brings the start of earnings season, which has the potential to bring some volatility to the market. Here is this week’s earnings calendar according to Yahoo Financial:
Earnings Calendar from Yahoo Finance
Source: Yahoo Finance
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