Higher inflation continues to be in the news, with the surge in energy prices fueling some stock volatility and a debate on whether inflation pressures will be transitory and their effect on the economic recovery. The benchmark West Texas Intermediate Crude oil price climbed above $80 last week for the first time since 2014. As we have discussed before, oil is certainly not the only item showing large price increases. The monthly Consumer Price Index (CPI) and Producer Price Index (PPI) reports are due out tomorrow and Thursday.
Investors will keep an eye on rising costs as the Q3 earnings season kicks off this week. Pricing pressures could pose a problem for corporate profits in the current quarter and beyond, with the S&P 500 already down 3.2% from its September record. Supply chain issues, labor problems and increased demand are all leading to shortages, while a rise in raw material costs is pressuring companies' bottom lines.
Banks start reporting their Q3 results this Wednesday, and they're likely to benefit from another quarter of loan loss reserve releases and increased stock buybacks as loan growth remains slow. Analysts have said that consumer loan activity is expected to show improvement, though it's still below prepandemic levels. On the capital markets side of the business, merger and acquisition activity has been strong and underwriting results are decent, although trading activity has been slow.
The pressure on Facebook did not let up following a three-hour Senate hearing last week in which lawmakers grilled the social media giant over its harmful effects on young people. Then over the weekend, a Facebook whistleblower named Frances Haugen accused the company of repeatedly prioritizing profit over clamping down on hate speech and misinformation. Her lawyers have already filed at least eight complaints with the SEC, according to the interview on CBS's 60 Minutes.
Merck asked the FDA to authorize emergency use of its antiviral pill to treat Covid-19. Dr. Scott Gottlieb had positive comments on the study that Merck released, and Americans could have access to the pill by the end of the year. It should be an interesting few weeks as corporate profits and inflation numbers are closely monitored.
