Corporate earnings season for Q2 got off to a strong start this week. Analysts have been expecting S&P 500 profits to grow about 23% this quarter, a second straight quarter above 20%. These will certainly be big shoes to fill! Big banks got the ball rolling this week with JPMorgan posting its largest profit ever while Goldman Sachs had its best quarter on record. Still, investors didn’t reward every strong report. Taiwan Semiconductor posted record results, but its stock fell on plans to spend much more on AI. UnitedHealth beat estimates and rose, while GE Aerospace also beat but still fell. Netflix dropped sharply after a weak outlook. In many ways, this tells us that investors and consumers alike want to see inflation data improve further, and our markets are pricing these “expectations” in accordingly.
Federal Reserve Chairman Kevin Warsh finished his first testimony to Congress this week, speaking to the House on Tuesday and the Senate on Wednesday. His message stayed consistent both days: the Fed remains focused on bringing inflation down, though he gave no hints about future rate moves. He also touched on bank regulation and said the Fed is watching AI and digital assets closely for their effects on the economy. Markets barely moved either day. His testimony came alongside a run of encouraging inflation news. June prices fell 0.4%, the biggest monthly drop since 2020, bringing yearly inflation down to 3.5% from 4.2%, while core inflation held at 2.6%. Wholesale prices told a similar story, falling 0.3% and easing to 5.5% for the year, both below forecasts. Together, the testimony and the data make it likely the Fed holds interest rates steady at its meeting later this month, with markets now pricing at an 88% chance of no change.
June retail sales rose 0.2%, close to expectations. A stronger 0.5% gain in core spending points to a healthy consumer, with spending on track of about 2% annual growth this quarter. Housing looked weaker: builder confidence fell to 34 in July, its 15th straight month in negative territory, and pending home sales dropped 5.4% in June as high mortgage rates keep hurting the market. This morning’s housing data added a twist. Housing starts jumped 19% to an annual pace of 1.427 million, beating expectations. But building permits, a better sign of future building, fell 3% to 1.367 million. That gap suggests builders may be clearing a backlog rather than starting a real rebound. Taken collectively, it remains obvious that lower interest rates will be the medicine needed to kick start things in a meaningful way.
Interesting to Note
Spain and Argentina booked their spots in Sunday’s World Cup Final, ousting France and England in the semifinals. Argentina’s Lionel Messi will chase a second straight title at MetLife Stadium. The World Cup has been a much-needed distraction this summer in my view!
Looking Ahead
Earnings season ramps up further next week, with a broader mix of companies scheduled to report.
The next FOMC meeting is July 28th-29th, where we’ll learn more about the committee’s next move.
Have a nice weekend!
Written by: Chris Wasson, CFP®
Sources:
CryptoBriefing – Bank Earnings Recap
Yahoo Finance – Q2 Earnings Live Updates
Yahoo Finance – June CPI Results
Federal Reserve – Warsh Testimony Transcript
Bank Policy Institute – Testimony Takeaways
Benzinga – PPI Market Reaction
Census Bureau – June Retail Sales Release
Yahoo Sports – World Cup Final Bracket
FRED – June Housing Starts & Permits
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Mosaic Asset Partners, LLC is not affiliated with Kestra IS or Kestra AS.
