Mid-Week Market Minute 8.9.23

Earnings Beating Consensus; CPI Report on Thursday

Stocks were largely unchanged in early trading this week as investors weighed generally upbeat earnings against a slew of credit-rating downgrades of several regional banks by Moody’s rating agency. Heading into second-quarter earnings season, the consensus was for earnings to fall by more than 7% on a year-over-year basis. As of this week, more than 80% of companies in the S&P 500 already have reported second-quarter results and overall earnings are on pace for a more modest decline of approximately 5% (FactSet). Earlier this week, credit rating agency Moody's cut credit ratings of several small- to mid-sized U.S. banks on Monday and said it may downgrade some of the nation's biggest lenders, warning the sector's credit strength likely will be tested by funding risks and weaker profitability (Reuters). 

On the data front, investors are looking forward to Thursday’s consumer prices (CPI) report for July. Expectations are for headline CPI to rise modestly from 3.0% to 3.3% annualized, with the core CPI expected to remain steady at 4.8%. Much of the anticipated rise in headline CPI can likely be attributed to higher energy prices along with more challenging year-over-year comparisons. Crude oil rallied more than 15% in July, and currently trades at more than $80 per barrel. This report will provide clues about whether the Fed’s policy measures are having the desired effect and what the central bank may do next. Markets currently ARE pricing in about an 85% chance of no change in the funds rate by the Fed at their upcoming Sept 19-20 meeting.

Overseas, data out of China showed the country’s consumer sector fell into deflation in July, with China’s consumer price index registering a decline of 0.3%, the first drop in over two years.  Meanwhile, producer prices in China fell 4.4%.  The CPI/PPI numbers out of China are a sign the effort to revive demand in the world’s second biggest economy is struggling, adding to worries about a prolonged global slowdown.  

Source: GSAM, CNBC, JPMorgan

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