by Paul Eitelman, Russell Investments
Key Takeaways
- Encouraging start to earnings season
- U.S. retail sales rebound
- Inflation ticks up
On this week’s edition of Market Week in Review, Global Chief Investment Strategist Paul Eitelman discussed key drivers behind the stock market rally. He also evaluated when the U.S. Federal Reserve (Fed) could cut interest rates.
Bullish Beats
Eitelman opened by noting stock markets around the world continued testing all-time highs this week, with both the S&P 500 and the FTSE 100 establishing new records Thursday.
In the United States, encouraging results from the early days of second-quarter earnings season helped lift stocks higher. “Of the S&P 500 companies that have reported so far, 85% have beat consensus estimates, which is a big positive for the market,” Eitelman remarked. He noted these companies include financial services firms as well as airlines.
These preliminary numbers suggest U.S. earnings strength—a frequent theme over the past few quarters—is still in play. “With corporate fundaments looking resilient, we think 10% earnings growth is possible by the time the season wraps up,” Eitelman stated.
Happy Days
The latest U.S. economic data also gave markets something to cheer about, Eitelman said. Retail sales rose by 0.6% in June after falling in May, while initial jobless claims declined from a week earlier. “We’re still not seeing any evidence of a layoff cycle in the U.S., which is very important for the health of consumers and the labor market,” he explained.
Investors also got a sneak peek at how the second half of the year may be unfolding with the release of manufacturing surveys from the Fed. “In another positive surprise, both the New York and Philadelphia surveys showed a rebound in business activity,” Eitelman said.
Price Pulse
Eitelman closed with a look at the U.S. inflation data published this week. “The latest numbers—which span consumer, producer and import prices—accelerated a little in June,” he said. The cost of goods in particular rose last month, Eitelman noted, adding this could be due to higher tariffs.
However, he said inflation in the services sector—the largest component of the American economy—is continuing to moderate.
“After combing through this report, we still think a September rate cut is on the table,” Eitelman concluded.
