Markets Advance on Early Earnings Strength and Solid Economic Data

Markets Advance on Early Earnings Strength and Solid Economic Data

Markets regained positive momentum last week, driven by a strong start to earnings season and encouraging economic data. Global equities, as measured by the MSCI All Country World Index (ACWI), advanced 0.60%, while U.S. equities, represented by the S&P 500, rose 0.61%. Investors responded favorably to better-than-expected corporate earnings and signs of continued strength in consumer spending and the labor market.

Q2 Earning Season

The second-quarter corporate earnings season kicked off in full swing last week, and early results have been encouraging. As of Friday, approximately 12% of S&P 500 companies had reported earnings, with 86% exceeding expectations—well above the 10-year average of 75%, according to FactSet. So far, financial companies have delivered the largest upside surprises. Analysts now estimate that earnings in the financials sector rose 8.6%, compared to a projected 5.6% growth across all S&P 500 sectors. Much of this strength came from major U.S. banks, which cited higher trading revenues and stronger capital markets activity as key contributors to their results.

U.S. Economy

Outside of earnings, the market also responded positively to encouraging economic data released last week. June’s U.S. Consumer Price Index (CPI) inflation came in slightly above expectations, with headline CPI rising 2.7% year-over-year, compared to forecasts of 2.6% and last month’s 2.4% reading. Meanwhile, the Producer Price Index (PPI) inflation came in lower than expected. Headline PPI inflation was 2.3%, below forecasts of 2.5% and last month’s revised 2.7% figure. On the consumer front, June’s retail sales data offered further evidence of continued spending strength. Overall retail sales increased by 0.6%, significantly beating forecasts of 0.1% and rebounding from a -0.9% decline in May, highlighting the resilience of consumer demand.

Looking Ahead

In the week ahead, several important economic reports are scheduled that will provide valuable insights into the U.S. economy. On Monday, the Conference Board’s Leading Economic Index will be released, offering a forward-looking gauge of economic activity. In the second half of the week, the Existing Home Sales report from the National Association of Realtors will shed light on current housing market conditions along with New Home Sales data from the U.S. Census Bureau. We will also have weekly unemployment claims from the Department of Labor, wrapping up with he release of Durable Goods Orders from the Census Bureau, highlighting trends in business investment.

As Always

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.