This is the most consequential week of this quarter. The Fed will announce rates on Wednesday, four of the “Mag 7” report earnings within two days of each other, we get a read on inflation, and Iranian (de-)escalation continues to be on watch! Whew, hold on for a bumpy week!
Is the economy growing or not? That is the core question we are asking ourselves. Right now, it is almost a toss-up between seeing a recession and seeing the economy continue to push higher. Corporate earnings have, so far, driven markets higher, and offered strong evidence of a growing economy. But, investors are getting impatient with the massive AI investment while seeing no return on that investment.
The Fed meeting will be a key indicator this week. The Fed hiking rates into a softening labor market is the most likely setup for a recession. We will be listening closely to the tone Walsh strikes when discussing the data and the path of future rates.
All-in-all, we are not recommending a bold call. Rather, we are in a wait-and-see mode. There are risks, but those risks have yet to fully materialize. In the meantime, strong corporate earnings are likely to drive the market still higher. In fact, FactSet now expects earnings to be in the high 30% growth range! That would be the highest growth in earnings in over five years.
Chart of the Week
One concerning chart we have been watching for a time is the ratio of Copper/Gold, and how it moves with bond yields. So, while bond yields have been marching higher for all of this year, normally implying economic growth, the metals market is not matching that movement. This tells me that the move in bond yields is largely driven by inflation fears, rather than forecasts of economic growth.
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