What Happened Last Week
- Federal Appointments: President Trump named Stephen Miran to be a temporary Fed Governor.
- Earnings Reports: Corporate earnings continue to surpass investor expectations across all sectors.
- GPT-5 Released: OpenAI released its newest AI model, renewing fears that software companies are vulnerable to AI innovations.
What We’re Watching This Week
- Inflation: The Consumer Price Index (CPI) for July will be released on Tuesday morning, marking the largest economic release of the week.
- Retail Sales: Friday will bring the release of July’s retail sales data, which is likely to be closely watched after a few weak prints.
- Deals: Trade negotiations remain ongoing. On Friday, President Trump is expected to meet Vladimir Putin in Alaska to discuss the War in Ukraine.
Investment Management Team’s Views
U.S. stocks shook off their losses on the back of a weaker-than-expected jobs report two Fridays ago and finished the week over 2% higher. The Mag-7 and other names relevant to the AI theme continue to lead global equities, as the rest of the market lags without much attention from investors. As it currently stands, several signs indicate that this rally may be overextended; however, voracious demand for tech equities among retail investors has defied expectations and driven the market to recent highs. Given that earnings season is all but concluded, markets will now have to contend with seasonal weakness and will likely shift their focus back to the macroeconomic outlook.
This week brings two major macro data points that may carve out the path for markets over the next few weeks. The July CPI report on Tuesday will be crucial for the rate outlook and equity valuations as expectations of a coming Fed cutting cycle have bolstered high multiples in U.S. equities. In addition, we will be watching for further signs that tariffs are pushing goods inflation higher. Lower inflation in services and housing may offset any higher costs in consumer goods, highlighting the challenge that the Fed faces in assessing the impact of tariffs on both sides of its dual mandate. Friday’s retail sales report will also be closely watched, as the last few prints showed some weakness in consumer spending. Slower consumption, especially as the labor market cools, has emerged as a growing macroeconomic risk.
Earnings for large cap U.S. stocks continue to come in better than expected, providing some fundamental support for the recent rally. Earnings season is set to enter a lull before Nvidia (and Broadcom, a week later) reports in two weeks. In addition to the economic data, the market will have to digest, President Trump continues to negotiate trade deals with foreign partners. Markets expect that China’s Tuesday deadline will be extended by another 90 days. Beyond trade, Trump is set to meet Russian leader Vladimir Putin on Friday in Alaska to try and bring an end to the war in Ukraine. Trump reportedly expects to speak with Ukrainian President Volodymyr Zelenskyy by phone ahead of the meeting, as there is doubt among Ukrainians and Europeans about Putin’s offer.