S&P 500 earnings reporting season is well underway, and we are carefully watching for negative sales surprises. Consumers, weary of inflation, are showing less tolerance for further price hikes across a wide array of goods and services. Partly as a result, consumer price inflation has decelerated notably. While that might be good for customers, it’s a mixed bag for companies. Over time, inflation and revenue growth have moved in tandem, meaning as firms lose pricing power, they also lose their ability to turn a profit. Our research report this week will focus on the outlook for corporate earnings and how it intersects with our expectations of softer labor market conditions. How quickly demand moderates will determine how much further – and how fast – inflation falls, but it will also drive profits (or losses) as the year goes on.

The Macro Week In Review

The Macro Week Ahead

1. U.S. GDP data for the fourth quarter of 2023 is out on Thursday. Consensus forecasts are for just under 2% annualized growth, less than half of the prior quarter’s pace, led primarily by consumer spending. The Atlanta Fed has run the most accurate GDP tracker in recent quarters and is currently calling for a stronger headline growth figure of 2.4%. U.S. economic data has yet to show the bulk of the impact from rising interest rates, so we expect further deceleration in the coming quarters.

2. The Federal Reserve will be closely watching Friday’s personal income and outlays data for December, which includes an update to PCE inflation. The Fed is targeting a 2% annual rate of increase on “core” PCE inflation, which excludes food and energy prices, as it decides when and whether to begin cutting interest rates. Over the past six months, that 2% annualized rate has been achieved, but it will take a few more reassuring data points for the Fed to feel it has accomplished its mission.

3. The European Central Bank meets on Thursday amid a recent run of poor data releases on everything from retail sales to industrial production. The bank is not expected to begin reducing its policy rate until later in the spring, in line with expectations for its peers at the Bank of England and the Fed.

What We Read This Weekend

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