The Setup & Where to Focus

Stocks kept grinding higher as incoming inflation data sparked discussions about a September rate cut last week. The S&P 500 rose 0.9% to close at another new all-time weekly high. The Nasdaq Composite added 0.8%, despite a Friday dip. 

The headliner was the July CPI report, which came in very close to expectations. 

• Last Thursday’s wholesale inflation gauge, the PPI, was well above estimates, however, which puts the Fed in a tight spot with its September meeting now just a month away. 

• Friday’s Retail Sales report affirmed solid consumer spending in June and July. 

• The week wrapped up with geopolitical intrigue as Presidents Trump and Putin shook hands and held a four-hour talk, presumably about bringing an end to the war in Ukraine (absent was Volodymyr Zelenskyy, president of Ukraine).

The Cboe Volatility Index (VIX) clung to the 15 spot throughout the data-heavy week, suggesting that the upcoming month will be somewhat calm in the equity space. 

• That assumption will be tested, as Fed Chair Powell speaks from the shadows of the Grand Teton mountains this Friday at 10 a.m. ET as he gives his annual address from Jackson Hole, Wyoming.

Zooming in on sector-level price action, Health Care (XLV) was hands-down the best performer, up 4.6%, led higher by shares of Eli Lilly (LLY) and UnitedHealth Group (UNH).

• We’ve previously analyzed performance with this pair of 2025 misfits, but last week was a rebound story. LLY had been dragged lower earlier in the month after discouraging trial results for one of its key GLP-1 weight-loss drugs. Dip-buyers stepped in over recent sessions, though, and the shares of the Indiana-based pharma company soared 12%. The stock remains 28% below its all-time high notched a year ago. 

• As for UNH, gains were even more impressive, and outside forces drove them. Once the most important company in the Dow Jones Industrial Average (DJIA), the health insurance giant came under attack for its billing practices over the first half of the year. The firm also posted dreadful quarterly earnings reports that kept the bears in charge. All of that came after the CEO of its American insurance business was murdered on the streets of Manhattan last December. The stock plunged from a high of $624 in Q4 2024 to $234 this past July. Last week’s 21% surge was primarily due to Friday’s climb, stoked by a slew of high-profile investors and hedge funds building positions in the beaten-down Health Care stock, including Berkshire Hathaway’s (BRKA) Warren Buffett. 

• With those story stocks in the news, it would be easy to bypass the tremendous strength of small-cap biotech companies. The SPDR Biotech ETF (XBI) rallied 6.1% in a clear sign of risk-on sentiment. It may have also been a beneficiary of the rate-cut trade (more on that to come).

Berkshire’s buying, as reported by its quarterly 13-F SEC filings, included purchases in the homebuilder niche, too. 

• DR Horton (DHI), Lennar (LEN), and PulteGroup (PHM) helped lift the Consumer Discretionary (XLY sector to the runner-up spot last week. Its 2.5% gain also featured rebounds in the restaurant industry. A 3%-plus rise in Amazon (AMZN), Home Depot (HD), and Lowe’s (LOW) didn’t hurt either. 

• So, there’s bullish price action heading into a key week of retailer earnings reports. Walmart (WMT) and Target (TGT) (from the Consumer Staples (XLP) sector) report this week, along with HD and LOW. 

• The Discretionary sector dipped on Friday, however, as traders digested the July Retail Sales report put out by the US Census Bureau.

Finishing last on the sector scorecard last week were Utilities (XLU) and XLP. 

• For the former, the group’s largest stock, NextEra Energy (NEE), jumped by more than 4% on Friday on bullish solar generation news, but the rest of the sector struggled, with some steam being let out of the AI trade. Constellation Energy (CEG) and Vistra Corp (VST), two of the data-center power players, shed multiple percentage points. 

• As for Consumer Staples, Walmart (WMT) was the notable drag, down 3.6% in what was otherwise a strong overall tape. Kroger (KR), the nation’s biggest stand-alone grocer, shed 6% on headlines that Amazon expanded its same-day delivery service to include perishables. DoorDash (DASH) and Instacart (CART) took a hit, as well.

Large-cap price action was chock full of narratives last week, but small caps were the talk of Wall Street trading desks. 

• The iShares Russell 2000 ETF (IWM) rallied 3.1%, making it back-to-back weekly gains, but the climb wasn’t smooth. Domestic small caps soared after the July CPI report crossed the wires, adding 3% last Tuesday. The rise continued through Wednesday, but IWM logged losses on Thursday and Friday, and there was a macro story dovetailing with prices. 

• Odds of a September Fed rate cut jumped to a near certainty once the July CPI numbers were released, and IWM is seen as among the most rate-sensitive parts of the stock market, as many of its component companies rely on short-term debt financing. 

• So, the tone was super upbeat mid-week; that changed after Thursday morning’s PPI. Wholesale prices rose more than expected in July, re-stoking inflation fears that the CPI report worked to calm. Small caps shed ground and underperformed the S&P 500 heading into the weekend. Still, the bulls came out on top over the five-day stretch.

Turning to overseas markets, international equities continued their stellar 2025. 

• The Vanguard FTSE All-World ex-US ETF (VEU) rose 1.5%, outpacing the S&P 500. For the year, US large caps have returned 10.4%, while the foreign market is higher by 22.4%; the 12-percentage-point gap is the most in favor of ex-US since 2009. 

• A weaker US Dollar Index (DXY) is the obvious driver, and the greenback indeed gave back another 0.3% last week. 

• The overseas story centered on Japan (EWJ) and China (FXI). The former jumped 2.9% to an all-time high, while Japan’s Nikkei 225 Index broke above its December 1989 high and the peak reached early last year. A healthy Q2 GDP report for the land of the rising sun, along with a record pace of stock buybacks, lifted EWJ. 

• As for the latter, it’s kind of the opposite story in China, but the same bullish takeaway—its macro data has been lousy, but that may prompt its heavy-handed politburo to enact more stimulus. Recall it was almost a year ago when a bazooka amount of fiscal influx sent the Hang Seng Index and Shanghai Composite to multi-year highs. That’s something to watch for in the weeks ahead.

Back home in bonds, the yield on the benchmark 10-year Treasury note seems pinned to 4.3%. 

• The key interest rate has been consolidating for the better part of the last three years. Its high was tagged in October 2023, a fraction below 5% after a fast ascent from a low hit during the March 2023 regional banking crisis (3.25%). 

• Since Q4 2023, it has generally been a series of lower highs and higher lows (a triangle technical pattern), with declining volatility along the journey. Even with intense scrutiny of deficit spending, including around the passage of the One Big Beautiful Bill Act (OBBBA), the bond market has been crickets. 

• What might get volatility going? A sudden turn in macro conditions, including either a mild recession or an upward inflection in US economic growth. Both could happen, and much hinges on how the Fed responds to tariffs. 

• Odds of a September rate cut are high at 92%, but FOMC voting members have recently come out pouring cold water over the notion of an imminent cut. 

• Last week’s CPI report was tame, but the PPI was cause for concern on the inflation front. Friday’s Retail Sales report underscored that consumers kept spending in a solid clip in June and July, which doesn’t jibe with the need for a quarter-point ease. We’ll know a lot more after Powell’s missive from Jackson Hole at the end of the week.

Wrapping up with commodities, oil sank for a second consecutive week, falling to its lowest level since May. 

• Bearish price action came ahead of President Trump’s historic meeting with Russian President Putin in Anchorage last Friday evening. The pow-wow lasted about four hours, and reports suggest it was a positive talk. 

• It remains to be seen whether Putin will agree to a ceasefire—it may require a second meeting. Putin turned to Trump at the end of the press conference and asked in English, “Next time in Moscow?” 

• So, this story isn’t done, and it could have key geopolitical implications that extend beyond commodities. 

• For the week, WTI shed 1%, gold fell 2%, and bitcoin lost 2%. Ether, however, gained 3%. The native cryptocurrency of the Ethereum blockchain platform has gone from $1,385 in April to a whisker from $4,800 at this month’s high as big investors line up. ETH’s all-time high remains $4,866, hit in November 2021.

The Look Ahead

Macro watchers are fixated on Powell’s speech on Friday. Still, there are plenty of other volatility catalysts between now and then, including retailer earnings, the release of the minutes from the July FOMC meeting, and PMI numbers for August. Let’s get to it.

Monday features minor reports, such as the New York Fed Services Business Activity Index, which has been running negative for several months. That comes in the premarket. 

• After the open, the NAHB Housing Market Index hits at 10 a.m. ET. It's seen as a real estate bellwether, so the bulls hope for an August rebound from lousy prints from May through July. 

• Treasury bill auctions are held in the afternoon.

Tuesday is more active, with events throughout the day. 

• July Building Permits and Housing starts (leading indicators) arrive before the bell, and, like the NAHB Index, recent data have been largely disappointing. The property market is perhaps most in need of lower interest rates. 

• Redbook retail sales for last week is released at 8:55 a.m. ET, and it has shown steady above-inflation growth in consumer spending, much like the official Retail Sales report has indicated. 

• The week’s Fed speak turns on in the afternoon, with Vice Chair for Supervision, and noted dove, Michelle Bowman, presenting. 

• Home Depot reports Q2 earnings in the morning.

Wednesday includes more words from Fed members. 

• We’ll hear from Governor Chris Waller, among the list of candidates to succeed Powell, just before noon. Bostic then speaks in the afternoon, shortly after the release of the July FOMC meeting minutes. We’ll get clues on the nature of the dissenting votes cast by Bowman and Waller, both of whom opted for a 25-basis-point cut three weeks ago. It will also be interesting to read if any other voters leaned with the pair of doves. 

• A 20-year Treasury auction also occurs in the afternoon. 

• On the earnings front, Target, TJX Companies (TJX), and Lowe’s report in the morning. Shares of Alphabet (GOOGL) could be in play as the parent company of Google hosts its Pixel event in New York.

Thursday is the kickoff to the Jackson Hole Economic Symposium, hosted by the St. Louis Federal Reserve. 

• Global central bankers convene in Wyoming to discuss monetary policy, present white papers, and interact with the media. The highlight is the Fed chair’s Friday morning speech. 

• Elsewhere, it’s a busy slate, starting with more chatter from Bostic in the morning, which happens to come immediately after Walmart reports Q2 earnings. 

• Jobless claims prints at the usual time, and the market expects another tame Initial Claims figure. Continuing Claims (two weeks in arrears) is likely to verify near the highest level since November 2021. 

• August Philly Fed continues the trail of regional survey data—last week’s NY Empire report was above estimates, so we’ll see if the Philly Fed backs that up. 

• Maybe the most significant macro data points of the week will be found in the August S&P Global Flash PMIs, released at 9:45 a.m. ET. It’s the first broad gauge of business managers’ feelings about the health of the economy this month. We think the Services side will be strong, near 55, while Manufacturing could come in above the key 50 spot (the demarcation between contraction and growth). 

• Existing Home Sales for July and The Conference Board’s Leading Economic Index (LEI) hit 15 minutes after the PMIs.

Friday is all about Powell’s speech. 

• Three years ago, his address was short and sour—an eight-minute pitch warning investors, households, and businesses that “pain” due to higher interest rates was imminent. 

• In 2023, the message was less intense, with the Fed chief reminding the market that the Fed “navigates by the stars under cloudy skies.” 

• Last year, “painful” Powell turned into “jolly” Jay, as he confirmed that “the time has come for policy to adjust,” ushering in a new rate-cutting cycle. 

• This time, we believe Powell aims to temper expectations for a September rate cut. It will be a pragmatic speech whereby he outlines risks to both sides of the Fed’s mandate (price stability and maximum employment). He won’t comment on Trump’s needling but will center on the importance of Fed independence (though just briefly). It’s important to point out that the topic of Jackson Hole this year is "Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy,” so the jobs situation will be the focus.

Fiscal Policy Framework

The tariff volume has been turned down. Top of the stack right now are updates on sector-level duties, primarily those related to pharmaceuticals and semiconductors. President Trump has proposed steep levies, up to 100% on chip imports and upwards of 250% on certain prescription drugs. Carveouts are likely for companies investing in US facilities, however.

More broadly, negotiations with international trading partners are ongoing. By now, it’s clear that Trump is indeed not “chickening out” on the overall tariff rate, which stands at 18% now that the August 7 reciprocal duties are in effect. 

The federal government’s hand is also penetrating the private sector in another direct way. Last week, the Trump administration agreed to grant NVIDIA and AMD export licenses in exchange for a portion of their China-related sales. A few days later, reports that the White House may take an equity stake in Intel (INTC) sparked a 23% surge in the US chip company’s stock, one of the best weeks in its 39-year history. The investment would be a watershed moment in this new US industrial sector strategy.

Finally, we noted strength in NEE shares earlier. NextEra is the country's largest solar power producer, and last week the Treasury issued less-than-feared guidance on “beginning contraction” requirements for wind and solar tax credits, providing relief for the renewables sector following the passage of the OBBBA.

Risks & Opportunities

We are increasingly watching the 10-year Treasury yield. Couple the technical developments on the chart with this week’s key Powell speech, and we could be setting up for a significant interest rate move. That will have key implications for stocks. If the Fed shifts its stance in favor of cutting, that will help lift equities, particularly small caps.

Conversely, if the same tune of needing to see more encouraging inflation data is relayed to the street, then that small-cap rally from last week will quickly reverse. Tariffs are the x-factor. So far, they have not stung consumer spending much, although that could change in the months ahead. Moreover, outlooks from the country’s biggest retailers will steer the spending outlook this week.

Oil is another coiled spring. A truce between Russia and Ukraine could send WTI below $60 per barrel. With RBOB gasoline rolling out to the cheaper winter blend, US gas prices may dip under $3 to the cheapest cost since early 2021 this fall. That would be a favorable offset to higher prices on the store shelves, supporting discretionary spending.

The tech trade takes a breather until NVIDIA earnings next Wednesday night.

Quick Hits

• July’s PPI increased by the most since March 2022, led by services (not goods), suggesting that the tariff hit was not that impactful.

• Small business optimism jumped in July, likely as a result of the OBBBA’s passage.

• Foreign investor holdings of US Treasuries rose by $80.2 billion in June to a record $9.13 trillion, countering the “death of American exceptionalism” media meme.

• US import prices are down 0.2% from a year ago, hinting that exporters are absorbing some of the higher levies on goods.

• The German 30-year yield rose to a 14-year high early last week, pressuring global interest rates upward.

• China's PPI declined for a 34th consecutive month. The world’s second-biggest economy is exporting deflation to the rest of the world.

• According to an Axios report, President Trump told Zelensky and NATO that Putin seeks a comprehensive agreement to end the war in Ukraine.

• The Ukrainian president said he supports Trump’s trilateral peace proposal, and he meets with the POTUS today in Washington.