US retail sales rose in July, marking a broad-based gain, and also June's numbers were upwardly revised, but economists do remain cautious, pointing to a softening jobs market and weakening consumer sentiment that could weigh on future spending.
Underlying inflation accelerated in the latest month at the fastest pace since earlier this. the core CPI picked up was driven by services, while goods prices rose modestly, easing some fears of tariff-driven price spikes.
Now this week all eyes are on the Fed Reserve as well as Jackson Hole and earnings from big box retail giants.
Joining me on this Monday morning is Chris Versace, CIO of Tomatica Research.
Chris, good morning and happy Monday to you.
So as we look at the week ahead for us, we will be getting some key earnings out from retailers including Walmart, Home Depot, Target, TJX, and Ross stores.
So first and foremost, Walmart is stealing the show this year, beating not only the market and rivals, but also some of the mag 7 names.
So what do you expect from the retail giant as we await their report?
Well, I think, Remy, we're going to want to see them deliver, you know, same store sales that say that over the last few months it's continued to take consumer wallet shares just like we've seen Costco continue to do over the last several months.
But I think we're also going to want to hear what does it say about its pricing strategy going into the second half of the year and its margins, because clearly we're starting to see inflation creep.
The system thanks to tariffs and the big question is going to be is Walmart going to pass through these price increases or hold the line, risking additional margin pressure maybe even resulting in a softer earnings expectation for the back half of the year.
And really what Walmart has to say on this could dictate what we hear from other retailers, not just this week but next week as well.
Yeah, and Chris, when we take a look at the economic data we got last week, I think it's important to mention the for demand to beat tariffs, EPS and revenue beats for online retailers and even restaurant chains are tracking well above their historical averages.
So what about the other retailers that are reporting this weekend?
What discrepancies can we actually expect here?
So you know it's kind of interesting we've seen a bifurcation in the consumer where, you know, again if you look at some of the numbers out of Walmart or even more importantly Costco that reports monthly revenue numbers, you could see that consumers are, you know, moving to places that allow them to stretch their spending dollars.
But at the same time, when you listen to the retailers and airlines on the higher end, You know, the outlook for the second half of the year, particularly for travel, continues to look vibrant.
So the question is what about those retailers that are in the middle, companies like your Target, for example.
My concern is that they're a little lost because, you know, they're not necessarily low end, but they're not necessarily higher end either.
So to me what they have to say about their strategy for the back half of the year could prove, you know, not only interesting, potentially concerning, Remy.
And I do want to get your take on inflation.
Speaking of concerning US inflation does remain above the Fed's 2% target, while the labor market is showing signs of slowing as well.
So Peter Powell's upcoming speech this week in Wyoming could offer more insight into the level of support for a September rate cut.
What will you be watching out for at the end of this week?
Well, it was interesting, Remy, because you just said, you know, Powell could say something, and I think a lot of folks are counting on him saying something, but he may not.
So there could be a little bit of market disappointment there.
Look, if you take a look at the inflation data that we got last week, or if you even track it back on a trailing 3 month average, whether it's CPI, PPI, or the data that we've found from ISM Services and Monthly PMI numbers, there's a clear trend that the inflation pressures are taking higher, particularly on a core level.
You know, the Fed's going to be focused in on that.
At the same time, I know we had a lot of job revisions in May and June, but still, you know, that July number was up on a sequential basis.
We'll have to see, I think, what the flash August PMI data.
Rings that's going to come out on Thursday, one day before Powell is expected to deliver a keynote address on Friday at Jackson Hole, and what that flash PMI report says about inflation in August compared to July, about the pace of employment growth in the services and manufacturing sector compared to July, that could very well shape any comments that Powell has to make.
And Chris, before our segment this morning, we're talking about the cooling temperatures here on the East Coast, and I think the sun is setting earlier as well, so that just speaks to the fact that summer is drawing to a close and earnings season is also winding down as well.
But through last Friday we saw 462 S&P.
500 companies making up 92% of the index reporting results and when it comes to what we've seen so far, over 80% of them have the earnings estimates while about 78.8% surpassed revenue expectations, and that is well above historical averages.
So what do you think is realistic going forward?
Well, Ray, we've seen S&P 500 consensus numbers for the second half of the year tick lower really over the last three months, and I think the question that we have to ask is, are they moving lower and companies can easily step over them, giving rise to the numbers that you just asked about, or are companies really going to start seeing the pinch of these tariffs in the second half of the year?
And I think we'll start to get, you know, a clearer picture.
On that as we move from August into September and we start to have a last wave of investor conferences, Citi, Goldman Sachs, and others will be having, you know, a fresh array of investor conferences, companies giving their presentations, updating with, you know, 2 out of 3 months in the quarter kind of in their back pocket.
I think that'll give us a much better picture on what's ahead.
And we have about 60 seconds here, Chris.
So I do want to ask you about small caps.
We did see small caps surge more than 3% last week, outperforming the broader market, but also we have to keep in mind that the major stock averages are at or near record highs.
So what do you expect from small caps?
Well, Rey, I think we've got to have to pay close attention to what happens on the interest rate cut front.
You know, to the extent that Powell delivers, you know, some cold water on the market, you know, small caps can be a little more interest rate sensitive.
We could see them trade off.
But, you know, candidly, I'm not a fan of saying large cap, midcap, small cap.
To me, it's all about capturing the structural change that companies are poised to benefit from.
So I, I would be more selective anyway across large cap, mid-cap or small cap.
OK, Chris, always great talking to you.
Thank you so much for joining us as we kick off a new trading week.
Thanks, Remy.
