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S&P 500 Recovers; CPI, Retail Sales Reports This Week

°¿±¹±ð°ù±¹¾±±ð·É:ÌýTrading volatility continued in stocks last week, as the S&P 500 index recovered from an early-week selloff to finish the week unchanged. Concerns of an economic growth slowdown were somewhat alleviated as the Institute for Supply Management (ISM) Services index report came in above consensus expectations for July. The report showed business activity and employment components increased back into expansionary territory. In addition, initial job claims increased less than expected, easing recessionary fears stemming from the weak jobs report from the prior week. In bonds, the 2-Year and 10-Year notes closed the week higher at yields of 4.06% and 3.94%, respectively, as bonds gave back some of their positive month-to-date returns. Looking forward to this week, upcoming inflation data will be key for markets that remain unsettled following increased volatility. On Wednesday, investors will get a look at the Consumer Price Index (CPI) report for July. Headline CPI is expected show a 3.2% annualized increase, while core CPI is forecast to rise 3.0%. On Thursday, retail sales are due out, with consumer spending expected to increase 0.3% in July after a flat reading the prior month. This inflation and consumer data should provide clues to the health of the economy following July’s weak employment that contributed to the recent sell-off. 

Update on Consumers and Corporations (from JP Morgan): The S&P 500 is still recovering from the recent sell-off, but meanwhile its constituents are on track to report 12% earnings growth. In addition to the numbers, the earnings season provides a unique perspective on the health of the economy. Continued growth requires continued spending, and management commentary offers insight into two of the three sources of that spending: consumers and corporations. There’s been a slight uptick in mentions of an economic slowdown, and consumer spending is a bit more in focus, while capital expenditures are less so. The changes are small, however, and there hasn’t been much chatter about job cuts, indicating overall concern is muted. On the consumer side, executives have highlighted a divergence in spending behavior across income brackets. While growth remains robust at the upper-end, lower-end consumers appear increasingly value conscious. They’re still spending but just allocating dollars more carefully. This strong consumer spending has translated to strong corporate earnings. At the same time, secular investment trends like AI, the energy transition and re-shoring have and should continue to boost capital expenditures. Balance sheets also remain robust, reducing the risk of something breaking. Unlike typical late-cycle conditions, consumer spending has been financed by real wage growth rather than borrowing, and companies are still spending down the cash they accumulated during COVID. In the storm of recent volatility, investors should anchor to the fundamental truth highlighted this earnings season: consumer and corporate spending is moderating but looks durable, so growth should be too.

Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s, Bloomberg, Factset, CNBC.

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