For a week that started out rather directionless in terms of stock market indicators, we’re sure making up for it late in the week. Not only is the unofficial start of Q2 earnings season commencing with the biggest Wall Street banks beginning to report, but plenty of economic data is hitting the tape at the same time.

First, as nearly every Thursday morning, we see new Initial Jobless Claims released for last week, and these continue to climb higher: 244K is much higher than the previous week’s unrevised 235K and the 234K expected. For a little more context, 12 weeks ago we were seeing cycle lows on initial claims of 181K, and this latest tally is the sixth straight week north of 230K new jobless claims.

Continuing Claims, as we’ve seen so many times over the past few months, are facing the opposite direction of new claims: 1.331 million longer-term jobless claims is down nicely from the downwardly revised 1.372 million from the previous week. Part of this is the fact that continuing claims are reported a week in arrears from new claims. Based on this, I suppose it’s only a matter of time before longer-term jobless claims begin to spike higher, as well.

Producer Price Index (PPI) results are out this morning, a day after the Consumer Price Index (CPI) data spooked economists with a +9.1% year-over-year headline number, and +1.3% month over month, which is the highest registered so far this year. PPI also came in hotter than expected for June: +1.1% is higher than the upwardly revised +0.9% from the previous month, though still half a percentage point off cycle highs of +1.6% in March.

Core PPI month over month is a morsel of good news here: +0.4% is below the +0.5% expected and only a third of the March high +1.2%. This core read strips out volatile — and expensive — food and energy costs, which we can see continues to represent most of the pain of inflation on the producer price side. Ex-food, energy and trade came in even lower: +0.3%, below the +0.5% expected.

Year over year PPI still looks frighteningly garish: +11.3% on headline, just 20 basis points off the March high, while core PPI year over year reached +8.2%, in-line with expectations. This is down a tick from May’s +8.3% and off the +9.6% high from March. Ex-food, energy and trade year over year is +6.4% — lower than the +6.6% expected and +6.8% the previous month.

Economists will be looking toward future PPI prints — not to mention CPI — to come well off these high levels, as we’ve already seen commodity prices roll over in just the past few weeks. Even oil is off its peak, as reflected somewhat in current gasoline prices. Thus, though these inflation metrics are notably high historically, we expect they will have defined the highs for the cycle. This will eventually mean good news for the economy and the stock market.

Q2 earnings results for some of Wall Street’s largest financial institutions were sub-optimal this morning, to be nice about it: both JPMorgan (JPM Quick Quote JPM – Free Report)  and Morgan Stanley (MS Quick Quote MS – Free Report)  both came in light on both earnings and revenues in the quarter, representing a tough time for the big banks.

finviz dynamic chart for JPM finviz dynamic chart for MS

JPMorgan posted its second-straight earnings miss (only the fourth earnings miss in the past five years) with $2.76 per share off the $2.85 in the Zacks consensus, while revenues of $30.72 billion in the quarter was softer than expectations by 3%. Shares are down -3% in the pre-market on this news; JPM is down -31% year to date. 

Meanwhile, Morgan Stanley reached earnings of $1.44 per share versus $1.55 expected, and well off the $1.89 per share in the year-ago quarter. Revenues of $13.13 billion were off estimates by -2.4% and well beneath the $14.76 billion a year ago. Shares are down marginally ahead of the opening bell today.

Pre-market futures are further hollowing out indices these morning: -530 points on the Dow, -145 on the Nasdaq and -58 points on the S&P 500. Market participants are cutting to the bone here on all of this data, with Retail Sales, Empire State Index and Industrial Production/Capacity Utilization — not to mention more Q2 earnings reports — tomorrow morning. Take a deep breath. This is the rough patch we’d been fretting.

Photo by Jacek Dylag on Unsplash

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