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It matters far more what investors do with their hard-earned cash than what they 'say' they'll do with it. If you can ferret out the "do" beforehand, you get rich pretty quick. Unfortunately, to paraphrase Ben Franklin, there are no certainties beyond death and taxes. The best we can do is make educated guesses, then adjust them as more information becomes available.

This week, we'll get a truckload of that "information" delivered to our desktops.

On Wednesday, the Federal Reserve will continue its War on inflation. On Thursday, the Bureau of Economic Analysis -- BEA to its friends -- will release the first estimate of second-quarter gross domestic product (GDP). On Friday, the BEA will issue its Personal Consumption Expenditures Price Index (PCE) for June. Meanwhile, we'll be barraged by earnings releases all week. 

You can bet professional investors will be working hard to figure out what to do next based on all this information. 

The Fed's set to hike rates (again)

The Federal Reserve's rate hike is arguably the easiest outcome to guess. The Fed has told everyone and their sister that rates will increase by 0.75%. Sure, there's a chance they go bigger, but the odds of that happening have been shrinking. The CME's FedWatch tool puts the probability of a 0.75% increase at 75% and 1% increase at 25%. Last week, it was 71% and 29%, respectively.

If the Fed increases rates by 0.75%, most will shrug, concluding it's "business as usual." If they go 1%, then the fear of a more severe recession will face-off against the argument that hikes have been so front-end loaded that the Fed will have to blink sooner, rather than later.

Are we in a recession?

The GDP report is a bigger wild card. The Atlanta Fed's GDPNow forecasting tool predicts second quarter GDP will clock in at negative 1.6%, matching the decline in the first quarter. If so, the back-to-back declines will land us officially in recession, despite spin doctors' attempts to tell us otherwise.

The GDPNow forecast can be wildly wrong, though. For example, it called for growth of 0.4% ahead of the Q1 GDP report, which was 2% higher than the official number. 

Regardless, if we get a negative 1.6% or worse on Thursday, it may bolster the argument rate hikes are working, requiring fewer of them in the future. However, if it's better than that, hopes the Fed will get friendly soon could be too optimistic.

A tidal wave of earnings

The onslaught of earnings reports will also factor into the mix for investors this week. The flow of earnings reports started increasing last week (21% of S&P companies have reported so far) but this week, we'll hear from 900 companies, including 175 stocks in the S&P 500.

Anything can happen, but I suspect revenue growth held up better than earnings growth last quarter. Companies have been increasing prices, but they've been unable to pass through the entirety of their cost increases. As a result, operating margins are declining. Additionally, a strong U.S. Dollar means multinationals and technology stocks, which generate lots of sales overseas, were weighed down by converting foreign currencies back into Dollars last quarter.

So far, Q2 results reinforce the "better revenue worse earnings" thinking.

In "Big Week, Big Earnings, Collision Course, Tracking Trend, Fed, Fun With Numbers," Real Money's Stephen Guilfoyle ("Sarge") noted today, "with 21% of the S&P 500 having reported...projections for the current quarter betray a fear of collapsing margin as Q3 earnings growth across the S&P 500 is now seen at 9.2%, down from 10.1% last week, but on revenue growth of 9.8%, up from 9.5% last week."

Currently, FactSet data expects S&P 500 companies to report 4.8% year-over-year earnings growth in Q2, up from 4% on Jun 30. The entirety of that growth, however, is due to the energy sector. Energy stocks are expected to see YoY EPS growth over 255%. Exclude them from the calculation and S&P earnings are expected to DROP 4.8%.

If earnings disappoint and guidance is anemic, analysts will reduce estimates further for the rest of 2022 and into 2023. In the short-term, weak earnings sound "bad," but stocks typically bottom when earnings estimates are falling, not rising. Therefore, declining estimates could mean we're making progress toward the nadir of this bear market.

All eyes on inflation

The PCE data on Friday will also play a big role in shaping investors' game plans because it's the Fed's favored inflation metric. 

Sure, the Consumer Price Index gets more media attention, but when the Fed says it's targeting 2% inflation, it's talking about PCE data, not CPI. In May, headline PCE was 6.3% while the core reading was 4.7%. 

I suspect the headline number will still be hot given CPI's headline number was a scoring 9.1% for June. The core number could be encouraging, though. It's declined for three consecutive months, falling from 5.4% in February to 4.7% in May.

If June's headline and core numbers come in hot, then it could derail the "friendly Fed on the horizon" argument. Alternatively, if headline or core dips, then it could spark optimism that halting hikes after September is more likely than not.

The Smart Play

For active investors, the flurry of activity makes it a "sit on hands" week. Better to flatten exposure, especially where there's hit-or-miss conviction, and then, reboot positions next week once you've had time to digest the data points. There's little reason to press lower-conviction ideas into both macro and earnings release uncertainty. Pros rarely make all-or-nothing bets in front of uncertainty because they've learned too many times it hurts to touch a hot stove.

We'll have better insight next week. So, sit back, enjoy some sunshine, and adjust your plan as necessary based on this week's data. 

I'm not alone in thinking this is a good plan. In "Doing Nothing Is an Underrated Trading Strategy," Real Money's James DePorre writes:

"The current environment is a good example of where it may be advantageous to do nothing. The indexes are mixed, breadth is just slightly positive, and there are very few pockets of momentum. The market is basically on hold while we await news events later this week.

Some traders like to bet on the outcome of major events. They predict what the news will be and how the market will react to it and then try to position to profit if they are right. Many traders feel that is what they should be doing.

However, good trading does not require predicting news events and reactions. Traders can do extremely well waiting for the news to hit and then trading the volatility that follows. You may miss a gap in one direction or the other when there is surprising news, but the majority of the time, there are big swings, and those can be traded with a much lower level of risk.

If you're a long-term investor, the plan is different: Continue to embrace bear market weakness as a good thing. Yes, bear markets are painful when they're happening, but there's never been a period when increasing your Dollar-cost averaging contributions to an index fund during a bear hasn't paid off. By increasing your share count and lowering your average cost, you'll be in the best position to recover your drawdown more quickly when a bull market emerges.

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