US futures point to a rough open later this morning and we have a slow start to what will be a very big week for the markets given Wednesday's Federal Reserve monetary policy decision.
With no major economic data points released today nor any significant earnings reports on deck and many world leaders attending Queen Elizabeth II's funeral, investors are likely to take a wait-and-see approach to the market until the Fed's interest rate decision and updated Economic Forecast Wednesday afternoon. The outcome should not only reveal the size of the Fed's latest move to combat persistently high inflation but signal where the Fed Funds rate will be as we exit 2022 and for how long it's likely to remain at elevated levels.
A new survey conducted by the Financial Times and the Initiative on Global Markets at the University of Chicago's Booth School of Business suggests the Federal Reserve is a long way from ending its campaign to tighten monetary policy and is likely to lift the Fed Funds rate above 4% and hold it there beyond 2023 as it faces a protracted inflation fight. Should Wednesday signal that the survey's findings are more than likely, equities and the global economy could re-test their June lows after having lost major technical support with the S&P 500 passing through the 3,900 level.
Sticking with the Fed and interest rates, following the August Consumer Price Index and Producer Price Index reports, the CME FedWatch Tool sees an 80% probability the Fed will raise interest rates by three-quarters a percentage point as it closes out its latest monetary policy meeting on Wednesday, September 21. It is not lost on us that the model also calls for a 20% chance of a 100-basis point (1%) hike when just 10 days ago that possibility was priced in at 0%.
Fed Economic Projections
Alongside that decision, the Fed will release its latest economic projections for GDP, the Unemployment Rate, and its preferred inflation metric, the Personal Consumption Expenditure index. When the Fed last updated these expectations in late June, it dialed back its GDP forecast to 1.7% for both this year and 2023 and increased its PCE inflation forecast for this year to 5.2% from 4.3% in March. Given what we've seen on the inflation front as well as other indicators for the speed of the economy, odds are they will make a similar round of adjustments in their next update.
As the market wraps its head around the notion the Fed will need to "go bigger, longer" to get inflation back to its 2% target, a larger cut to the Fed's GDP forecast for this year and next runs the risk of reigniting recession concerns. This also likely means that while Fed Chair Powell will keep a firm tone about fighting inflation, he will likely choose his words carefully when discussing the impact on the economy. Exiting the week brings the September Flash PMI reports from S&P Global, and what they have to say will be used to scrutinize the Fed's updated economic forecast even further.
As the market focuses on all of that, thankfully there will be just over a handful of earnings reports to be had in the coming days. Costco (COST) will report its latest quarterly results, and amid the items, we'll be interested in what the company has to say about its plans to continue to grow its warehouse footprint, a leading indicator of the high-margin membership fee revenue stream.
FedEx (FDX) rocked markets on Friday with its earnings pre-announcement and when it reports its August quarter results in full, we'll have a better sense as to how much of that pre-announcement was due to company-specific events vs. something larger.
With quarterly results from Darden (DRI) , food inflation, wage pressures, and pricing action will be on the menu as we get ready for the September quarter earnings season. And when General Mills (GIS) reports, we will be digging into those results with an eye toward what it says about grocery demand and pricing.
As we shared in Friday's Roundup, we have another round of investor conferences as more companies approach the quarter-end quiet period. As we get ready for the forthcoming September quarter earnings season, we will remain on watch for earnings pre-announcements not only from portfolio companies but also from their customers, competitors, and suppliers. This week's conference schedule includes:
- Wells Fargo 5th Annual Consumer Conference
- JPMorgan 13th Annual U.S. All Stars Conference
- Sidoti Fall Small Cap Virtual Conference
- DA Davidson 21st Annual Diversified Industrials & Services Conference
In addition to those conferences and the week's earnings reports, there are also a number of high-profile company-specific events. Here too, readers should be mindful of what is shared about current and forward industry conditions as well as updated guidance relative to expectations.
Ralph Lauren (RL) will host an investor meeting on September 19 to provide an update on the apparel giant's strategic growth plan and key initiatives. On Tuesday, September 20th, Nvidia (NVDA) CEO Jensen Huang will give a keynote address at the GTC 2022 Conference.
Also today, Salesforce (CRM) holds its annual DreamForce conference and Sumo Logic (SUMO) hosts its own Investor Day, and Qualcomm (QCOM) holds an Automotive Investor Day. Thursday, September 22, Airbus (EADSF) holds its Capital Markets Day, an event that is closely watched by the aviation industry.