Earnings season is upon us, and optimism has equity markets surging. Will corporate earnings push sentiment higher?
Monday
S&P 500 0.14% | NASDAQ 0.27%
Tariffs on imports were announced over the weekend on Mexico and the European Union effective August 1st. Markets then shifted their focus on inflation and corporate earnings announcements. While little was released on Monday, there is split sentiment on corporate balance sheets holding strong and inflation impacts to their bottom lines.
Tuesday
S&P 500 0.40% | NASDAQ 0.18%
In a day with mixed news, the S&P500 fell after the Consumer Price Index (CPI) came in hotter than expected in June. Inflation has been sticky, and the data fueled concerns of tariff related pressures on the costs of goods. The tech sector rose higher after notable chip companies were granted permission to sell chips to China.
Wednesday
S&P 500 0.32% | NASDAQ 0.25%
Markets fell early amid mixed headlines reporting that President Trump wanted to fire Federal Reserve Chairman, Jerome Powell. Even if desired, the President’s powers do not allow termination of the Federal Reserve Chair to effectuate policy. Also, contrary to the CPI data released on Tuesday, the Producer Price Index (PPI) lowered in the month of June. In the context of inflation, markets cheered the announcement as the price pressures were not as evident in pricing on the part of producers. Markets rallied through the close.
Thursday
S&P 500 0.54% | NASDAQ 0.75%
Retail sales rose higher than expected and much to the joy of broad indexes. The S&P500 reached a record high after several corporate earnings announcements. The tariff concerns began in early April and continued to dissipate.
Friday
S&P 500 0.01% | NASDAQ 0.05%
Consumer sentiment was released on Friday to finish this week’s trading. Sentiment has been on the rise in the past two months and corporate earnings have contributed nicely to equity growth expectations. Overall, the indexes were flat on the day.
Conclusion
S&P 500 0.59% | NASDAQ 1.51%
The current climate is quite favorable for equities even with the uncertainty of inflation and tariffs. The stage is being set for a showdown between monetary policy (interest rates) and a strong (but slowing) economy. Growth forecasts have been revised higher for the 2nd quarter but could lower as the back-half of 2025 moves further along. The Federal Reserve released their Annual Bank Stress Test with all 31 banks passing their recession scenario. The scenarios include measuring reserve limits and default rates in the event the economy were to encounter significant headwinds. Banks had a solid earnings reporting week including some regional banks. If lending remains strong and balance sheets remain unaffected, this rally may just be longer-lived and gives the opportunity for companies to really make some hay.
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