LPL Market Signals: Mr. Powell Goes to Washington

Market Blog Posted by lplresearch

Friday, July 23, 2021

Inflation is soaring and Jerome Powell still isn’t overly worried about it. In fact, he was grilled by Congress last week and held his ground on his inflation views. This week in the LPL Market Signals podcast Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder breakdown that, along with a preview of first quarter earnings.

Earnings season is here.

First quarter earnings season officially kicked off and is already off to a great start. Jeff noted that just last week we thought earnings could be up in the mid-70% range year over year, now it could hit 80%. Ryan noted last quarter earnings came in way above expectations and wouldn’t be shocked to see that one again. Jeff noted that the majority of the gains should come from reopening areas, as the economy continues to surprise to the upside.

See enlarged chart.

Jerome Powell goes to Washington

Last week was Federal Reserve (Fed) Chairman’s biannual meeting with Congress and overall he remained steadfast that the spike in inflation the past three months is indeed transitory. Ryan pointed out this is also our base case as well, that inflation will be higher, but we don’t see runaway 1970s style inflation. Jeff then noted that the majority of the jump in prices can be found in areas like new cars, used cars, airfare, and hotels. In other words, these areas are all about the reopening and the other parts of the economy are seeing prices remain more tame.

The start of something more?

Ryan and Jeff end the conversation discussing Monday’s big market drop. Ryan noted after a 90% rally, some type of pullback would be perfectly normal. Also, we aren’t quite seeing the amount of breadth we saw last year and earlier this year, so this is indeed a potential warning sign of a well-deserved break. Jeff pointed out that the S&P 500 hasn’t had a 5% correction since October, which is a very long time. In fact, you tend to see three separate 5% corrections a year on average, so to not have one the full first half of this year only increases the odds of a 5% pullback in our views.

Tune In Now

Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the US and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunesGoogle Podcasts, or Spotify and find us on the LPL Research YouTube channel.

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