Wall Street
Weak Jobs Report Scrambles Fed Rate Bets as Chair Warsh Weighs Inflation Fight
A dismal July jobs report has upended Wall Street’s expectations for next month’s Federal Reserve meeting, complicating new Fed Chair Kevin Warsh’s stated mission of driving inflation back down to the central bank’s 2% target. The Labor Department reported that employers cut 23,000 jobs in July — a surprise contraction economists had not been forecasting — and revised down hiring for May and June by a combined 103,000 positions. The revisions erased much of what had looked like a resilient labor market just weeks earlier. In the wake of the report, the market-implied probability that the Fed holds interest rates steady at its September meeting jumped to 56%, up from 45% the day before, according to federal funds futures pricing. “The chances of holding just went up pretty significantly today,” said Cory Stahle, an economist at the Indeed Hiring Lab, adding that further signs of labor-market deterioration could put rate cuts back on the table in the months ahead. Heather Long, chief economist at Navy Federal Credit Union, struck a more cautious tone about what the data means for the broader economy. “The U.S. labor market is stalling again, and that is going to make the Federal Reserve’s job harder,” Long said. The weak jobs numbers land at a delicate moment for the Fed. Warsh, confirmed by the Senate in May and sworn in as chair later that month after a contentious nomination fight, has made clear that bringing inflation back to target is his top priority — even as the labor market shows fresh cracks. Annual inflation ran at 3.5% in June, well above the Fed’s goal, and forecasters expect the July Consumer Price Index, due out in the coming weeks, to come in only slightly cooler at around 3.4%. That combination — sticky inflation alongside a softening job market — is exactly the bind the Fed has spent much of the year trying to avoid. Some economists argue the inflation numbers still leave room for the Fed to keep policy tight, or even raise rates further. Bank of America economists are sticking with a call for a 0.75 percentage point rate hike before the end of the year, arguing that Warsh’s Fed is unlikely to ease up on inflation just because hiring has cooled. Others see it differently. If August’s jobs and inflation data confirm the July slowdown wasn’t a one-off, analysts say the Fed could pivot toward cuts to avoid tipping the economy into a deeper slump. For now, though, the September meeting looks far less like a lock for a hike than it did a week ago, with traders and economists alike bracing for a “wait and see” approach from Warsh’s Fed. For consumers, the uncertainty cuts both ways. A prolonged hold or a hike would keep borrowing costs — mortgages, auto loans, credit cards — elevated for longer. A weaker labor market, on the other hand, raises the risk of slower wage growth and softer hiring heading into the fall, even as prices at the register remain stubbornly above the Fed’s comfort zone. The Fed’s next policy meeting is scheduled for September, and officials will have a fresh round of jobs and inflation data in hand before making their call.
Retail Sales Post Worst Drop in Over a Year as Consumer Sentiment Sours, Even With Wall Street Near Record Highs
American consumers pulled back on spending more sharply than at any point in over a year this July, according to fresh Commerce Department data released Friday, complicating the otherwise upbeat narrative Wall Street has been telling itself throughout a summer defined by record stock highs and cooling wholesale inflation. What the Data Showed Headline retail sales fell 0.6% in July, badly missing economist expectations of a modest 0.1% gain — the steepest monthly decline the Commerce Department has recorded in more than a year. The disappointing figure landed just as a separate reading on consumer attitudes told a similarly downbeat story: a preliminary University of Michigan survey showed consumer sentiment for August declined from the previous month, with inflation remaining top of mind for American households even as official inflation readings have generally trended in a more favorable direction throughout the summer. The combination caught markets’ attention specifically because it arrived on the heels of a string of encouraging inflation data. The Producer Price Index for July came in essentially flat on a monthly basis, with core PPI — stripping out food and energy — rising just 0.2%, both readings that were broadly in line with or slightly better than economist forecasts and a meaningful improvement from June’s revised figures. That benign inflation data had helped push major stock indexes to fresh highs earlier in the week, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all closing higher Thursday as investors grew more confident the Federal Reserve would hold off on a rate hike at its September meeting. A Market Caught Between Two Narratives The tension between cooling inflation and softening consumer spending puts investors in a genuinely tricky spot heading into the fall. On one hand, easing wholesale price pressures reduce the odds of the Fed tightening policy further, which is generally good news for stock valuations and borrowing costs alike. On the other, a sharp pullback in retail spending — traditionally one of the most reliable real-time signals of underlying economic health, given that consumer spending makes up roughly two-thirds of U.S. economic activity — raises legitimate questions about whether American households are beginning to genuinely tighten their belts rather than simply benefiting from moderating price growth. Energy stocks were a notable bright spot amid the mixed data, with the sector on pace for a weekly gain of roughly 7%, helped along by oil prices that ticked higher even amid otherwise low-volume, typical late-summer trading conditions. Communication services also led broader market gains for the week. Individual Earnings Still Delivering Strength Even as the macro picture grew more complicated, individual company earnings continued to provide plenty of positive headlines. Industrial battery maker EnerSys reported quarterly earnings of $3.66 per share, sharply ahead of both the prior year’s $2.08 and the consensus estimate of $2.82, sending shares up 5.7%. Shipping giant A.P. Møller-Mærsk posted an even more dramatic beat, with earnings of 45 cents per share against a forecast of just 21 cents, and revenue of $15.76 billion coming in nearly 8% above expectations — pushing its shares up 9.6% on the day. Not every earnings report landed well, however. Optical retailer National Vision saw its shares tumble 6% after full-year guidance came in below what Wall Street had been hoping for, and infrastructure and engineering firm Aecom dropped a similar amount after posting revenue down roughly 14% year-over-year, well short of analyst forecasts for its Americas segment specifically. What’s Coming Next Week Markets are bracing for what could be a pivotal stretch of earnings reports that will help clarify whether Friday’s disappointing retail sales figure was a genuine warning sign or simply a one-month blip. Major retailers including Target and Walmart are scheduled to report results in the coming days, giving investors a much more direct read on the health of American consumer spending than the aggregate government data alone can provide. Chipmaker Nvidia’s highly anticipated earnings report, due later this month on Aug. 26, will offer a separate but equally closely watched signal on whether the AI infrastructure investment boom that has powered much of this year’s market gains still has room to run. The Bigger Picture Supporters of the administration’s economic approach point to still-strong corporate earnings, a resilient AI-driven investment cycle, and continued progress on wholesale inflation as evidence that the fundamentals of the economy remain sound, arguing that a single soft retail sales report shouldn’t overshadow months of broader economic strength. Others note that declining consumer sentiment alongside weaker-than-expected spending, even amid genuinely encouraging inflation data, suggests many American households continue to feel real financial strain despite the more favorable headline economic numbers — a disconnect between Wall Street’s performance and Main Street’s day-to-day experience that has persisted through much of the past year and shows few signs of fully resolving itself. This story is developing.
Inflation Comes in Tame, Stocks Near Record Highs as Wall Street Bets the Fed Stays on Hold
Wall Street pushed toward fresh record territory Wednesday after the government’s July inflation report landed almost exactly in line with what economists expected, easing fears of an imminent Federal Reserve rate hike and giving investors renewed confidence that strong corporate earnings can keep carrying markets even amid ongoing uncertainty over energy prices tied to the Iran conflict. What the Inflation Data Showed The Consumer Price Index rose 0.1% month-over-month in July, while core CPI — which strips out volatile food and energy prices — came in at 0.2%, matching consensus estimates almost precisely. That in-line reading was enough to ease near-term rate-hike anxiety that had been building in the market in recent weeks, even though the report technically showed inflation running slightly hotter than the previous month on both a monthly and annual basis. The reaction in bond markets was immediate. The 2-year Treasury yield, which is especially sensitive to near-term Fed policy expectations, dropped 4 basis points to 4.17%, while the benchmark 10-year Treasury yield similarly fell 4 basis points to settle at 4.65%. Following the release, futures markets pricing in the odds of a Fed rate hike at the September meeting dropped to around 44%, down from roughly 48% just the day before — a meaningful, if not dramatic, shift in how traders are positioning for the central bank’s next move. Stocks Push Toward Records Major indexes responded positively. The S&P 500 climbed toward a fresh record, up roughly 0.5% on the session, while the Dow Jones Industrial Average gained about 150 points and the Nasdaq 100 rose nearly 1%. The moves came against a backdrop of what analysts have described as a relatively quiet summer trading environment overall — thin volume, narrow daily index swings, and a tapering flow of second-quarter earnings reports as that season winds down. Gold also caught a bid on the softer yield environment, with futures pushing above $4,500 an ounce for the first time since early June, extending a roughly 14% rally over just the past three weeks as investors sought safe-haven positioning amid the mix of geopolitical and monetary policy uncertainty. AI and Chip Stocks Lead the Charge Beyond the macro data, strong individual earnings reports provided plenty of their own momentum. Cloud infrastructure company CoreWeave surged as much as 20% in premarket trading after posting stronger-than-expected sales results, while server maker Super Micro Computer advanced nearly 10% on a revenue forecast that beat analyst expectations. The strength extended overseas as well, with strong results from Chinese tech giant Tencent lifting sentiment for hyperscalers and chip producers more broadly, and Singapore’s sovereign wealth fund Temasek reportedly taking fresh stakes in memory chipmakers SK Hynix and Samsung. The AI infrastructure trade has been a defining theme of markets throughout the summer, and Wednesday’s data suggested that momentum remains firmly intact even as some analysts have periodically raised questions about the sustainability of the sector’s valuations. Bank of America analysts reiterated a buy rating on Nvidia in recent sessions, telling clients the chipmaker’s shares remain cheap relative to its growth trajectory and dismissing broader circular-financing and memory-supply concerns that had briefly weighed on sentiment as “overblown.” The Complicating Factor: Oil and Iran Not every signal pointed toward smooth sailing. Oil prices have remained choppy and elevated throughout the week, with markets closely tracking mixed signals coming out of ongoing U.S.-Iran negotiations over reopening the Strait of Hormuz to normal shipping traffic. Brent crude for October delivery gained more than 1% earlier in the week to trade near $84.42 a barrel, with traders citing uncertainty over whether a deal to fully reopen the strait is likely to materialize on the timeline some administration officials have suggested. That energy uncertainty is a genuine wildcard for the inflation outlook going forward. Analysts have noted that higher oil prices feed directly into fuel and transportation costs, which could complicate the Fed’s calculus in the months ahead even if this particular CPI report came in benign. As one market strategist put it in commentary following the report, “While the report was better, high inflation remains a frustration for Americans” — a reminder that even a reading matching expectations doesn’t necessarily mean the inflation fight is fully behind the economy. A Divided Fed Heading Into Its Next Decision The muted, in-line CPI print is likely to do little to resolve what analysts describe as a genuinely divided Federal Reserve heading into its next policy decision. Fed officials had signaled back in July that they would need to see continued improvement in core inflation between now and their next meeting in order to justify holding off on a rate hike — meaning Wednesday’s data, while not alarming, also wasn’t dramatic enough to definitively settle the internal debate at the central bank. The Fed will have additional data points to weigh before its September meeting, including the Producer Price Index due out the following day and a full August employment and inflation picture still to come. What It Means for Everyday Americans For consumers, the practical upshot of Wednesday’s report is a mixed bag. A tame, in-line inflation print is generally reassuring news for financial markets and reduces (without eliminating) the near-term risk of another Fed rate hike that would make borrowing even more expensive for everything from mortgages to auto loans to credit cards. At the same time, the persistence of elevated energy prices tied to the unresolved Iran situation, along with a 10-year Treasury yield still sitting close to 4.7%, means many of the affordability pressures households have felt over the past year — particularly around borrowing costs — aren’t going away simply because one month’s inflation report came in as expected. The Bigger Picture Supporters of the administration’s broader economic approach point to the combination of strong corporate earnings, a still-resilient AI-driven investment boom, and inflation that continues moving in a generally favorable direction as evidence that the economy remains fundamentally sound even amid genuine geopolitical headwinds. Skeptics counter that markets sitting near record highs alongside elevated…
Corporate Earnings Surge Again as Wall Street Banks Post Blowout Second Quarter
Corporate America is turning in one of its strongest earnings stretches in years, with major Wall Street banks kicking off second-quarter results on a high note and analysts projecting another blockbuster quarter for the S&P 500 as a whole — a bright spot for the economy even as the labor market cools. Major banks reported better-than-expected second-quarter earnings, supported by higher trading and investment banking revenues, with analysts expecting S&P 500 earnings per share to grow by roughly 23% year-over-year — which, if realized, would mark a second consecutive quarter of 20%-plus earnings growth. Strong Profits, Cautious Investors Despite the strong headline numbers, market reaction has been mixed. Analysts note that beating earnings estimates alone hasn’t been enough to move markets, with investors increasingly focused on companies’ expense outlooks and forward guidance rather than just the quarter that already happened. A Fed Meeting on the Horizon The strong earnings season comes just ahead of the Federal Reserve’s next policy meeting, scheduled for July 28-29. With inflation cooling more than expected and the labor market showing some signs of softening, the central bank faces a delicate balancing act: keeping rates high enough to guard against a resurgence of inflation while not choking off an economy that, by many measures, remains resilient. Recent comments from Fed officials suggest some openness to eventual rate cuts, with one recent policymaker noting that inflation risks have eased somewhat since the Fed’s June meeting. A federal court ruling earlier this month also affirmed legal protections for Fed leadership, easing near-term concerns that the administration could move to reshape the central bank’s leadership to influence monetary policy directly. The Bigger Picture Taken together, strong corporate profits, cooling inflation, and a still-low unemployment rate paint a picture the administration has been eager to highlight: an economy that is absorbing the effects of tariffs and trade renegotiation better than many critics predicted, even as economists caution that a softening labor market bears watching in the months ahead. This story is developing.