Investors received fresh data on inflation last week, which is a key driver of Federal Reserve monetary policy. Stocks initially rallied after the July Consumer Price Index came in cooler-than-expected. Prices rose 3.2% on a year-over-year basis, less than the consensus forecast of 3.3%. The Producer Price Index for July, however, came in a notch hotter-than-expected, offsetting some of the optimism on the inflation fight.
Also in play last week, Moody’s downgraded the rating on ten banks and assigned negative outlooks to eleven others, citing growing financial risks and strains which could impact profitability. This was a headwind for the financial sector as well as the broader market. Reports of declining exports and falling prices in China also weighed on investor sentiment. Put it all together, and the major stock market averages ended the week mixed.
The Standard & Poor’s 500 Index dipped .3% to 4,464. The NASDAQ Composite posted its second consecutive weekly loss, shedding 1.9% to 13,645. The Dow Jones Industrial Average was the gainer, adding .6% to 35,281. So, we saw some rotation out of big cap technology stocks into the Dow, whose performance is significantly behind the NASDAQ so far this year.
Looking to the week ahead, it’s what we refer to as retail week. Financial markets will be gauging the health and confidence of the consumer, as Home Depot, Walmart, Target, TJX Companies, and Ross Stores are all scheduled to report earnings. Away from retail, we’ll also be getting quarterly reports this week from Cisco Systems, Applied Materials, Walmart, Palo Alto Networks, and Deere & Company.
In total, earnings results for the quarter have come in better-than-feared. Of the 456 companies in the S&P 500 that have reported earnings to date for the second quarter of 2023, 78.7% have reported earnings above analyst estimates, which compares to a long-term average of 66% – according to I/B/E/S data from Refinitiv. These results have been supportive of stock prices. As this earnings season wraps up, expect even more focus on the path of interest rates and the overall health of the economy.
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All the best – Southport Station Financial Management, LLC