We are coming to the end of earnings season, with about 70% of major US companies having reported. It looks like we will end up with about 5% earnings growth for the third quarter, which — as I have mentioned before — is a very ambiguous signal.
Of course, we have an election in the US on Tuesday. Investors are likely to watch that outcome very closely as betting markets have the candidates practically tied. It is normal have excess volatility in markets right around the election and then see a run-up into the end of the year. Check out the chart from last week for a closer look at that dynamic.
On the data front: last week, inflation came in hotter than expected leaving investors wondering if the Fed will be able to cut rates at the pace they had previously thought. Also surprising, the US created a pathetic 12,000 new jobs last month. Even after adding back the Boeing strike and effects of the hurricane, that is still well below expectations. The headline unemployment rate remained at 4.1%, but that was due to more people leaving the workforce — not a good sign.
Let’s connect
This week is also the week the week the Fed meets to determine the Fed Funds rate. A cut is expected, but investors will watch Powell’s commentary very closely in the press conference to get a signal about how their path for rates may have shifted.
This is a busy week in markets!
Chart of the Week
One of the indicators I follow to help me determine the business cycle is the Index of Leading Economic Indicators. Typically, this indicator tends falls ahead of recessions. In the chart I’ve noted the number of months from the peak of the index to when a recession began. The previous record (since 1989) was 21 months. We are now in our 32nd month since the index peaked in March 2022, which is the longest streak on record.
Of course, it may be that this is a false signal and the Fed has engineered a soft landing. In that case, we should expect to see this index begin to rise again very soon.
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