Stocks advanced this past week as strong earnings growth provided a tailwind to prices. However, sandwiched between the advance was Wednesday’s drubbing after the Fed announced that they were holding interest rates steady, but did not provide much clarity as to the direction from where we currently stand.. As noted within last week’s Snapshot, “the rhetoric surrounding the upcoming mid-term elections in November will move from the back burner to the front which should also heighten investor anxiety. However, we believe that any meaningful pullback, should it come, would be a welcome opportunity to add to positions in equities, as the economy remains strong and the AI revolution is still in its early innings.”
- Kevin Warsh concluded his second meeting of the Open Market Committee (FOMC) as the Fed Chair this past Wednesday and as noted above, failed to impress investors. Yields rose and bond prices fell as, by a 9-3 vote, the Fed kept interest rates unchanged rather than hike by a quarter point. Currently, we would not make too much of Wednesday’s selloff as the market rebounded both Thursday and Friday and the bond market settled down. However, we will keep a close eye on rates as, at some point, the market will send a more explicit signal. Not to put the cart before the horse, but this month’s inflation data (Consumer and Producer Price Indexes) will be closely watched to see if they provide calm data as they did for June.
- Shares of Microsoft (MSFT) and Amazon (AMZN) jumped as Meta Platforms (META) and Apple (AAPL) sold off, as investors responded to differing earnings data. Microsoft rose as earnings came in above estimates as cloud growth accelerated while Amazon shares jumped on strong demand for Amazon Web Services (AWS), despite increasing their projection for capital expenditures. Meta sank on disappointing guidance, diminishing free cash flow amidst continuing capital expenditures. Apple sold off on higher costs for memory.
- Historically, markets often bottom when a hedge fund collapses. This past week it was reported by the Wall Street Journal that Leopold Aschenbrenner’s Situational Awareness Hedge Fund, which grew to as big as $45 billion in assets from leveraging (never a good idea) investments in semiconductor stocks was forced to raise cash to meet margin requirements by unloading a good percent of the publicly traded portfolio to Citadel’s Ken Griffin as these stocks came under recent selling pressure. We couldn’t agree more with the statement from Richard Diao (Source, CNBC) who noted that “a lot of people saw this blow-up as a matter of not if, but when. Maybe his views on AI are correct in the long run, but in the public markets, you have to be prepared for the short-term.”
Economic Data That Drove Market Sentiment This Past Week…
- According to the Department of Labor, the Employment Cost Index, a “measure of quarterly changes in compensation costs, which include wages, salaries, and employer costs for employee benefits for civilian workers (non-farm private and state and local government)” rose by 0.9% during the second quarter, after rising and identical amount during the first. The ECI has risen by 3.4% y/y. The wages & salaries component(70% ofECI)rose by 0.9% during Q2 vs. 0.8% during Q1-2026 and as compared to 3.2% y/y. The cost of benefits rose by 1.0% during the previous quarter, after rising 1.2% during Q1-2027 and by 3.8% y/y. (Source, U.S. Bureau of Labor Statistics)
- The University of Michigan reported that its Final July Reading of Consumer Sentimentrose to 55.2 (-10.5% y/y) from a preliminary July 54.4 as well as from a final June level of 49.5. The final July expectations componentrose to 55.4 (-4.0% y/y) from a preliminary July 54.7 and from the final June 50.7. Lastly, the final July current conditions componentinched up to 54.8 (-19.4% y/y) from a preliminary July 54.7 and from a final June 47.7. According to the Survey of Consumers Director, Joanne Hsu, “consumer sentiment confirmed its early-month reading, landing almost 12% above June. Broad-based improvements were seen across all groups by income, education, wealth, age, and political party.” (Source, Univ of Michigan)
- Second Quarter Gross Domestic Product (initial estimate), as reported by the Commerce Department, a tally of the output of all goods and services in the United States, rose at an annualized rate of 2.1% (2.1% y/y). Real Final Sales to Domestic Purchasers rose at an annualized rate of 3.1%, up from 2.2% during the first quarter. Government Spending (Government Consumption Expenditures and Gross Investment), slipped by 0.8% during the second quarter after rising 4.4% during Q1. The PCE Price Index rose at an annual rate of 5.1% during Q2, up from 4.6% during Q1. While thePCE Price Index Excluding Food and Energyrose at an annual rate of 3.4% during Q2, down from of 4.4% during Q1. (Source, U.S. Bureau of Economic Analysis)
- The Bureau of Economic Analysis reported that Personal Incomerose 0.2% during June after rising 0.7% in May. However, after adjusting for inflation, Personal Incomerose 0.3% during June after rising 0.2% in May. Consumer spending, or Personal Consumption Expendituresrose 0.3%, after climbing 0.9% during May. However, when adjusting for inflation, real consumer spending edged up by 0.4%.Inflation remains a key factor, as the PCE Price Index fell 0.1% for the month and by 3.7% year-over-year. The core index, which excludes volatile food and energy costs, rose 0.1% from the previous month and by 3.3% y/y. Amidst these shifts, the Personal Saving Rateslipped to 2.7% of disposable income, down from 3.0% in May.
- The Conference Board’s Consumer Confidence Indexfell to 90.8(-6.6% y/y) during July from 92.2 in June. The present situation indexfell to 114.9 in July from 118.5 (-9.9% y/y) while the expectations componentremained unchanged at 74.7 (0.4% y/y). Those surveyed saying that jobs are “hard to get”fell to 21.5% of respondents during July from 21.7% in June while those claiming that jobs were “plentiful”fell to 24.6% of respondents from 25.5% during those same months.
Economic Reports scheduled to be released this week, include the following – on Monday, June Construction Spending and the July Manufacturing Purchasing Managers Index Report from the Institute for Supply Management (ISM); on Tuesday, June Factory Orders, the June U.S. Trade Balance and the June Job Openings and Labor Turnover Survey (JOLTS); on Wednesday, the July Services Purchasing Managers Index Report from the Institute for Supply Management (ISM); on Thursday, Initial Weekly Claims for Unemployment Benefits, June Wholesale Inventories and the Initial Estimate of Second Quarter U.S. Productivity; and, on Friday, July Non-Farm Payroll Report, the July Unemployment Rate and June Consumer Credit.
Several potentially market moving companies are scheduled to report earnings, to includeBerkshire Hathaway (BFRKB), Palantir Technologies (PLTR), Advanced Micro Devices (AMD), Caterpillar (CAT), Merk (MRK), Toyota Motor (TM), Arista Networks (ANET), Amgen (AMGN), McDonalds (MCD), Gilead Sciences (GILD), Disney (DIS), Western Digital (WDC), Sandisk (SNDK)m Novo Nordisk (NVO), Eli Lilly (LLY), and Softbank Group (SFTBY).
