What Happened Last Week
- Q2 Earnings: Earnings season kicked off with generally strong results, but the next two weeks are the real test for the recent rally.
- Consumer Health: Both earnings and last week’s June retail sales data point to ongoing resilience in consumer spending.
- Inflation Data: The inflation report showed some early signs of tariff-related price pressures.
What We’re Watching This Week
- Earnings Ahead: The first two Mag 7 names, Tesla and Alphabet (TSLA, GOOG), along with a host of industrials and materials names, will report this week.
- Politics: Markets will digest the results of Sunday’s Japanese elections and turn focus to the upcoming summit between the EU and China.
- Trade: Negotiations with key trading partners continue as the August 1 deadline approaches and the Trump Administration ratchets up its rhetoric.
Investment Management Team’s Views
Narrow price action led by tech, growth stocks, and retail darlings powered the S&P 500 to a fresh all-time high, while small caps and the average S&P 500 stock finished the week lower. Global stocks also made new highs, led primarily by emerging markets in Asia, as the White House signaled it would relax chip export controls against China. Last week’s earnings results were strong overall, but as valuations continue to stretch towards the levels seen in December, just after the election, it feels as though the bar for companies’ reports is being raised. Earnings season ramps up with TSLA and GOOG reporting this week, but the real test comes next week with 40% of the S&P 500 reporting, a Fed meeting, July’s jobs report, and the August 1 tariff deadline.
Last week’s economic data did not significantly alter the narrative on consumer health or the outlook for Fed policy. The Consumer Price Index (CPI) data for June, released last week, showed that prices paid for furniture, appliances, and apparel all increased by more than expected. However, rental inflation cooling offset higher prices in those tariff-sensitive segments. The housing market continues to soften as interest rates remain high, but retail sales data showed that one of the key engines of economic growth in America, consumer spending, remains resilient. In total, this data suggests that the Fed will likely maintain its current stance and leave rates unchanged at its upcoming policy meeting.
Earnings season continues this week, with a large number of industrial and materials companies set to release their results. Ahead of Wednesday’s reports from TSLA and GOOG, the U.S. defense contractors will provide updates, and we will hear from German software giant SAP. Broadly, investors are likely to remain focused on the impact of tariffs and the state of the consumer this earnings season. For the Mag-7 and other tech firms, investors will be looking for commentary on trends in AI-related CapEx (both for infrastructure and personnel) and will hope to see productivity gains from the nascent technology begin to materialize in the form of earnings and improved efficiency.