Broker Check
Earnings Season + Inflation Data + Fed Speak = Market Volatility

Earnings Season + Inflation Data + Fed Speak = Market Volatility

July 15, 2022

• Second quarter earnings season is picking up.
• Two red hot inflation reports have investors focused on the Federal Reserve (FED).
• Factors driving market volatility are not going away soon.

Investors have had a lot to digest recently, and this is evident in the recent stock and bond market swings.
Intraday market swings have been large as investors get new earnings reports, economic data, and
comments from Fed officials.

Earnings season is upon us, and more companies began releasing second-quarter earnings results and
offering future earnings guidance. We expect more companies to miss revenue and/or earnings projections
and taper future expectations as we move through the earnings season. While this is largely priced into
markets already, the headlines from these investor calls will continue to cause angst in markets.
Two new inflation readings were also released, and both came in higher than expected. First, we got a
report on the Consumer Price Index (CPI) for June that showed inflation was 9.1% higher than last year.
This was an increase from May’s reading and squashed the idea that we have already seen peak inflation.
It was also the highest reading since November of 1981. The next day we got another report on producer
prices confirming inflation is indeed hot. Input costs for companies grew at a year-over-year rate of 11.3%.
The hot inflation data naturally shifts attention to the Fed.

The Fed is responsible for keeping inflation in check. They can do this by raising interest rates which
increases borrowing costs, which in turn slows the economy and demand for goods and services. The fear
is that the Fed will be forced to raise interest rates too much and too fast and hurt the economy to the point
it will cause a recession. The idea of a soft-landing, where the Fed can raise rates slowly and to a level that
would kill inflation and yet not cause a recession, is fading. The new inflation readings sent probabilities for
a 1% July rate hike soaring and stock markets adjusted accordingly. So, when Federal Reserve Governor
Christopher Waller said he was also disappointed with the data but was still in favor of a 0.75% hike in the
July 26 meeting, stock markets again adjusted their expectations. This was a clear example of markets
reacting to the constant news flow and uncertainty.

Unfortunately, these chains of events will continue, and investors will continue to account for them. Market
volatility will remain elevated while new information comes to light. The good news is that much of the bad
news is perhaps accounted for in stock prices, which have largely fallen well off their peaks. If we do enter
a recession, it could be mild because the labor market is very strong. People tend to spend money if they
have a job and do not fear losing it. Additionally, household and corporate balance sheets have strong
fundamentals and inflation may be peaking soon. Negative sentiment is high, which can be a bullish
predictor as it creates more opportunities for upside surprises.

It is important to have an investment allocation that is aligned with your risk tolerance, and we advise that
you work closely with your Cetera financial professional for guidance through these volatile times.

Information is provided by Egan, Berger & Weiner, LLC and written by [author/publishing company], a non-affiliate of Cetera Advisor Networks LLC.
The views stated in this piece are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities. Due to volatility within the markets, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

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