What we learned last week:
“Warm summer sun, / Shine kindly here, / Warm southern wind, / Blow softly here. ~ Mark Twain, “Warm Summer Sun”
Markets finished mixed last week, this didn’t stop the S&P 500 from hitting all-time highs Thursday.
Two different reports on inflation and tech earnings provided the S&P 500 with tailwinds to all-time highs. The Dow Jones Industrial Average finished in negative territory as investors wrestled with energy supply tensions in the Middle East and a decline in July’s retail sales.
Inflation has investors’ attention as it is a key signal in the interest rate policy of the Federal Reserve. Rate hike expectations fell sharply with the results of Wednesday’s Consumer Price Index and Thursday’s Producer Price Index report.
Consumer prices rose in line with expectations during the month of July, markets were looking for a hot reading due to the rise in energy prices. Notably, energy prices have seen an annual increase of 14.7%, however price increases while warm, remains soft.
The Producer Price Index notched a monthly reading of no change, compared with forecasts for a 0.2% increase. This report is looked at as a leading indicator for consumer prices and July’s no change comes after a decline of 0.1% in June.
Neither report captured the higher inflation economists have warned of.
Moving on to the AI mega trend which has been the bull market’s fuel, the trend gained a boost Wednesday on the quarterly earnings reports from higher-performance server and storage maker Super Micro Computer and optical technology company Lumentum. Super Micro Computer helps data centers store data with their server products, while Lumentum’s technology helps move massive amounts of data between circuits/chips.
Wrapping up last week’s events there are two concerns bubbling up. First, July’s consumer spending declined. Reduced spending at gas stations, within the motor vehicle industry (includes parts and dealerships), and online sales were among the biggest areas to see spendings declines in retail sales.
Contributing factor to the decline in spending is most likely gas prices. Brent Crude prices rose above $89 per barrel on Wednesday and WTI finished the week above $80 as Iran and the United States negotiate control over the Strait of Hormuz. Iran is looking for relief from economic sanctions and the ability to collect tolls on vessels using the Strait.
Consumer spending will take center stage this week, after a decline in retails sales, with the quarterly earnings reports from Walmart, Target, and Home Depot expected to provide further insight into the strength of the consumer.
What’s ahead this week:
Economic Reports
- Meeting minutes from the most recent Fed meeting will be published and looked at how voting members look at economic conditions for future interest rate decisions.
- US Flash Manufacturing and Services PMI report Friday will show pace of economic growth in the two sectors
Earnings
- Quarterly earnings reports begin their wrap up with companies in the consumer retail sector
- Housing market stocks will attract investors’ attention as this market has struggled to gain ground
- Home Depot
- Lowes
- Toll Brothers
- Apparel retailer TJX
- Target and Walmart both report this week
- Housing market stocks will attract investors’ attention as this market has struggled to gain ground
My goal is for you to feel educated and informed about variables we do and don’t have control over and find ourselves working within. I hope to do it in an informative and relatable way. As always, I value your relationship and planning objectives – my door is always open for conversation.
