Hope you are all doing well. The S&P 500 and the NASDAQ posted weekly gains of 0.6% and 1.5%, respectively, as both indexes set record highs and rebounded from the previous week’s slight declines. The Dow slipped 0.1% and is still 1.5% shy of its record set last December. Coldplay was in the news this week after the kiss cam at their concert went viral. I have broken down this week’s update using Coldplay songs.
Something Just Like This
After the recent run in stocks investors are trying to determine where they want to go and how much they want to risk. Earnings season will be a key factor in that decision. This week we got the first reports and the first three major U.S. banks to report second-quarter results exceeded analysts’ expectations owing in part to a surge in investment banking income. Netflix exceeded expectations and raised their full year revenue outlook. Strong earnings reports like this are exactly what we need to keep volatility under control. If corporations continue to exceed growth expectations then all the noise coming out of D.C will just cause short term swings and the market will continue its long term growth trajectory.
The Scientist
Could President Trump remove Powell? Managing inflation and interest rates under this administration… Nobody said it was easy. However, it would be a shame for the administration and Powell to part. The market reacted negatively to reports Trump was considering firing Powell. Trump later walked back the rhetoric. Powell has guided us through a pandemic and 7 years of a recession free economy. It is hard to argue that he has been anything other than fantastic at his job. If he is removed prior to the end of his term it will likely cause both legal challenges and market volatility. Powell and the Fed are data dependent, they are measured in their actions. They deserve the benefit of the doubt when it comes to the timing of rate cuts. Also unlike previous Fed chairs he does a good job communicating and letting you know what the Fed is planning and how they are looking at the data. I expect Powell to finish his term as I think the President realizes the markets have more confidence in Powell then he does.
Clocks
Tariff policy is the confusion that never stops. However consumers continue to spend, swimming against the tide of tariff uncertainty. Retail sales rose in June. Overall retail sales climbed by 0.6% for the month, well above forecasts of 0.1%. Consumers spent on autos and auto parts, as well as some apparel and food services. However, there were declines in home furnishing and appliance categories. That could be indicative of higher prices in those categories as perhaps appliance and furniture makers are starting to pass through the tariff expense to the end consumer. The strength of the consumer is of the utmost importance to the economy as a whole. U.S. consumer consumption is about two thirds of the Gross Domestic Product (GDP). GDP is how we measure economic growth so a strong consumer bodes well for the long term performance of the stock market.
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