RECAPPING LAST WEEK
Equity markets continued their march higher last week, as the S&P500 and Russell 2000 hit
new all–time highs for the second consecutive week. The NASDAQ came within 2% of its early
June all–time high, though it continues lagging its counterparts. Nine of eleven S&P500
sectors gained ground, with materials and consumer discretionary falling behind. Crude oil
rose 6.5% on yet another stall in negotiations with Iran, sending Energy up 7.5%, making it the
clear leader. 86% of S&P500 stocks have reported earnings that exceeded expectations, with
88% reporting. Currently Q2 earnings are tracking a staggering 50% higher than the same
time last year, which has helped to ease markets’ concern with unprecedented AI capex
spending. We saw a new development in the capex story last week, as Nvidia’s CEO Jensen
Huang took a ‘wall street tour” and reached preliminary agreements with Goldman Sachs and
four other firms to raise $500 billion to build additional AI infrastructure, on top of the more
than $700 billion the hyper–scalers were already expected to spend this year. The deal
potentially extends the massive spending path well into next year and helps explain the
market’s overall strength this week. Inflation numbers supported the rally, as July’s CPI data
came in right on the screws, rising just 0.1% month–over–month and 3.4% year–over–year,
with producer prices unchanged. Those numbers reduced expectations for a rate hike at the
September Fed meeting to 35%, down from 55% a week earlier, and 80% in late July.
Jobless claims remained low at 209K, easing concerns from the payroll report the week
before. Despite all the good news, Treasury yields remained elevated, with the 10–year
closing at 4.68%. Most other metrics stayed constructive as the dollar held firm, credit
spreads stayed tight, and volatility continued pressing lower. International equities rallied as
well, with emerging markets taking the lead, confirming the markets risk–on posture. Precious
metals rose modestly last week, but bitcoin can’t seem to catch a break, losing another 3%.
THE WEEK AHEAD
This week is packed with economic data, but the focus will be on the release of July’s FOMC
minutes as investors look for clues regarding the Fed’s posture leading up to the September
meeting. The decision to hold rates steady in July featured three dissenters so these minutes
could reveal how close the other nine were to voting for a hike. U.S. housing and
manufacturing data will appear throughout the week, and inflation data from Canada, The
Eurozone, and Japan will tell whether global inflation is cooling alongside the U.S., though the
recent rise in energy prices won’t be reflected in those reports. Japan’s GDP release could
have implications for further tightening from the BOJ, and at midweek we’ll see the U.K. and
Australia’s employment data. Earnings reports will be retail–heavy: Home Depot weighs in
Tuesday, Target, Lowe’s, and TJX deliver results on Wednesday, and Walmart and Ross
Stores report Thursday. The main concerns will be oil prices and treasury yields—any retreat
from recent highs in these areas could turn the markets’ current headwind into a tailwind,
adding further support. On the other hand, continued pressure would make it difficult for
equities to continue their advance.
(Schwab)
