I may need to back track on my thoughts of a slow summer. This week, we'll get the Consumer Price Index (CPI) and the Producer Price Index (PPI) reports for June. The Fed likely will focus on these two measures of inflation for July's late-month Federal Open Market Committee (FOMC) interest rate decision. Current expectations are for another quarter-point rate hike.
Last Friday saw a miss on non-farm payroll, but average hourly wages exceeded expectations and Thursday's initial claims came in a nudge above consensus. That means I expect another interest rate hike this month unless CPI and PPI show drastic declines. Those 4.4% year-over-year wage increases are keeping the economy humming along.
As if inflation data wasn't enough for investors to consider, we find ourselves staring at yet another earnings season. It feels like we just exited earnings season a few weeks ago. Fortunately, the big names kicking off earnings come from the financial sector.
Big banks such as Wells Fargo (WFC) , JPMorgan Chase (JPM) and Citigroup (C) seldom are major market movers. We will hear from PepsiCo PEP, Delta Air Lines (DAL) and UnitedHealth Group (UNH) as well. Ironically, PEP or DAL may influence investors more as they will provide insights into consumer spending and travel.
I adopted a wait-and-see approach last week regarding the major indexes. The overall action did not deliver anything decisive in equities. Treasuries completely broke down, but that is not an area I am currently trading.
Another sector breaking down is healthcare. The Health Care Select Sector SPDR ETF (XLV) moved lower all week. With the 10-day exponential moving average (EMA) poised to cross below the 21-day EMA, the results and reaction from UnitedHealth will hold a lot of influence where XLV heads. The ETF could easily see another 3-4% downside without good news from UnitedHealth. This isn't one I would want to be long if that 10-day EMA gets comfortable below the 21-day EMA.
While we may start the first half of the week slowly, prepare for an interesting next few weeks during an ordinarily quiet summer.
