What To Watch for This Week: Fresh Figures on Earnings, Inflation, and GDP

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What's Happening Today

Investors are busy this week with earnings season as the country's biggest companies report how well they did in the most recent quarter. Earnings not only give investors key information about corporate performance, but also sometimes offer forecasts from company executives on where they see the economy going in the future.

Investors will closely watch earnings, as well as economic data released later this week on gross domestic product (GDP) and inflation. On Thursday, the Commerce Department will release an advance estimate of the strength of the U.S. economy by letting us know if GDP increased or decreased. If GDP is said to have dropped in the fourth quarter, it could stoke fears of a recession.

The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, will be released on Friday. This will be the last piece of inflation data we will receive before the Fed kicks off its first policy meeting of the year next week. The PCE Price Index is forecasted to ease, and if inflation numbers slow in line with expectations, investors will likely cheer that the Fed might not only give us a smaller rate hike, but that they could also slow down the pace of rate hikes this year. But if inflation cools less than expected, it could cause investors to get jittery that maybe the central bank will continue to stay aggressive.

Remember, rate hikes won't just impact your portfolio, they will also affect your finances as borrowing costs get higher and higher. So if you have credit card debt, or are looking to secure a mortgage, next week's rate hike decision will likely have an effect. Rate hikes also slow down the economy, which could kick off a recession and hurt us all.

While there has been some optimism that the U.S. could avoid a recession this year, today's release of the Leading Economic Index from the Conference Board showed otherwise. The index signaled a recession in the near term after dropping more than expected in December. But what does that mean? According to the Conference Board, there was "widespread weakness" in the economy, including a slowing jobs market and weaknesses in manufacturing and housing. In other words, the signs are saying that things will get worse, before they get better.

- Kristin

What's Happening Today

Economic Barometer Warns that a US Recession Could Come Soon (CNN)

One of the Pandemic Era's Biggest Tax Breaks Has Expired (The Balance)

Homeowners Struggle to Get Pandemic Aid Meant to Stop Foreclosures (Wall Street Journal)

How To Recession-Proof Your Mortgage (The Balance)

Diamonds, Filet Mignon Will Be Cheaper This Valentine's Day (The Balance)

What Money Moves Should You Make In Your 20s? (The Balance)

Why Is Investing Important? (The Balance)

Term of the Day

Compound Interest

Compound interest is interest earned from the original principal plus accumulated interest. Not only are you earning interest on your beginning deposit, you're earning interest on the interest.

Think about compound interest a bit like what happens when the "snowball effect" occurs. A snowball starts small, but the more snow that's added, the bigger it gets. As it grows, it becomes bigger at a faster rate.

Off the Charts

One way to start earning compound interest is to open an investment account and contribute a set amount to it every month. Over time, your investments could grow in value and allow you to build your wealth. And the more time you give your money to build upon itself, the more it compounds.

For example, if you contributed $100 per month to an investment account for 40 years, and earned a 10% annual rate of return on investment each year, your money could grow to be more than $530,000.