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Weekly Market Recap |
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Despite some early jitters due to talk of new U.S. tariffs on a couple of our country’s largest trading partners, stocks ended the week relatively flat with gains in the tech sector offsetting an overall mid decline in the broader markets. A mix of good economic news helped buoy optimism as retail sales were relatively strong (people are still spending), inflation data came in cooler than expected (which may be good for interest rates), and unemployment claims remained low. A near perfect trifecta for economic enthusiasts! News that Nvidia will once again be able to provide certain AI related chips to China and a healthy first round of corporate earnings releases also helped sentiment as investors looked past another rumor that Trump would be firing Federal Reserve Chair Powell. When all was said and done, the tech-heavy NASDAQ and S&P 500 made new record highs just above last week’s numbers, while the Dow Jones Industrial Average and smaller stocks tended to tread water for the week. Commodities were mostly lower last week, mainly due to a stronger U.S. dollar, which tends to put pressure on prices across the board. Oil prices slipped nearly 4% as investors seemingly remained concerned about how ongoing global trade tensions might hurt economic growth and energy demand. Copper and gold both moved slightly lower, as markets digested previous gains. In currency and bond markets, the U.S. dollar rose modestly, supported by stronger-than-expected economic data, including the aforementioned retail sales and job numbers. Interestingly, despite the strong data and new tariff announcements (which could be viewed as inflationary), the upward move in Treasury yields was more subdued than I would have expected with the 10-yearyield closing the week just under 4.5%. For now, it seems the US dollar and bond yield influence on stocks is rather muted, but investors need to be watching closely as any big moves could either further the current sentiment or begin to weigh on the stock market in the coming weeks. While certain indices have been making new highs, the once strong momentum has slowed recently. This can be seen by looking at the price charts, which appear to be grinding sideways since the beginning of July, while some of the more popular measures of market breadth (upward participation amongst most stocks) may be showing signs of cooling. |
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Source: Stockcharts.com What to Watch This Week: Earnings Take Center Stage, But Two Key Reports Matter This week, there aren’t many major economic reports, so most of the market’s attention will likely be on corporate earnings, as the second week of the unofficial earnings season sees more companies reporting. However, two important economic reports will be released: the Flash PMIs (Purchasing Managers’ Index) on Thursday and the Durable Goods report on Friday. The Flash PMIs give us an early look at an estimate of how the U.S. economy is doing in July, while the Durable Goods report on Friday tells us how much businesses are spending on things like equipment and machinery, a key signal of business confidence. Strong reports could be another positive sign for the economy and the markets, whereas any tariff-induced weakness showing up in the data could put a spin on the recently strong data we’ve received from other key reports, as that type of information would likely show up here first, so stay tuned… |
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Tying it all together: Rather extreme optimism seems to have taken hold and stocks in general may be priced for perfection. Recent economic data shows growth is slowing but may not be enough to trigger recession worries or prompt the Fed to cut rates right away. TheFederal Reserve has kept interest rates steady for now, but officials haveindicated they could lower rates later this year if inflation continues tocool. The labormarket continues to be a steady point for the economy. While job growth hasslowed from last year, unemployment remains low and wage growth has moderatedwithout dropping sharply. This balanced situation gives the FederalReserve more flexibility: there’s seemingly enough strength to avoid adownturn, but not so much that it risks pushing inflation higher. However, theFed is navigating a narrow path, and any surprises in inflation or jobs datacould quickly change the outlook. Stock marketvaluations are still relatively high, showing strong investor confidence — orpossibly some complacency. Despite ongoing risks from geopolitics, trade tensions, and uncertainty about the Fed’s next moves, markets are apparently betting on a best-case scenario: falling inflation, a strong labor market, Fed rate cuts, and no recession. While this outcome is possible, it leaves little room for disappointment if the data turns less favorable. Looking ahead, there are both risks and opportunities for investors. If the current outlook shifts, we could see more market ups and downs. However, a steady job market and signs that inflation is easing may help support well-constructed portfolios. In this environment, it’s important to stay diversified, focus on high quality investments, and be ready to adjust as conditions change. This approach has consistently helped investors navigate uncertain times. Please feel free to share these commentaries and, should you have any questions regarding your current strategy or the markets in general, please reach out to your CIAS Investment Adviser Representative. |
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