This week, all eyes are on inflation. The Consumer Price Index (CPI) report drops Tuesday and will set the tone for the markets. Wall Street expects core inflation—excluding food and gas—to rise 2.9% year-over-year. That’s still above the Federal Reserve’s 2% target, making a rate cut less likely in July. Investors want clarity, but they’re not getting it. Tariffs have clouded the outlook, pushing up costs just as inflation seemed to cool. The Fed’s next move is uncertain. While President Trump pushes for lower rates, Fed officials remain cautious. For now, markets are left waiting.
Markets Watch Netflix and Big Bank Earnings Closely
Earnings season kicks off with heavyweight names. Netflix leads the tech pack, releasing its numbers on Thursday. After a 12% revenue jump last quarter, investors want to see if the streaming giant can keep up the momentum. AI chipmaker TSMC will also report, offering insight into the booming demand for semiconductors. But tech isn’t the only focus. Big banks like JPMorgan Chase, Wells Fargo, Goldman Sachs, and Morgan Stanley are set to report. Some, like JPMorgan, have already beaten expectations in Q1 thanks to high interest income. Others, like Wells Fargo, are still dealing with regulatory overhangs and weaker loan growth. Strong earnings will be needed to keep the stock market rally alive. Analysts expect S&P 500 earnings to rise just 5% this quarter—the slowest pace since late 2023. The good news? Growth is expected to accelerate by Q3. Still, investors remain cautious.
Inflation, Tariffs, and Retail Sales Keep Markets Guessing
Markets aren’t just tracking earnings—they’re laser-focused on economic data. The CPI report is one thing, but retail sales data on Thursday could offer more clues. Sales dipped in May, likely due to a pre-tariff shopping spree. If that trend continues, it could signal trouble ahead for consumer demand. Tariffs are also making inflation data harder to read. New levies on Canadian goods and floated tariffs on all U.S. imports have shaken sentiment. Though stock markets barely flinched, economists warn of long-term effects. Higher import costs could offset disinflationary trends, especially as lower oil prices fade from the data. The Fed wants “clearer signals” before acting. But that clarity may not come soon. Fed Chair Jerome Powell and others have said they’re watching policy impacts closely. But if tariffs keep changing, so will the outlook.
Markets Supported by Strong Sectors Despite Uncertainty
Despite the noise, the stock market remains near record highs. Why? Strong performance from tech and communication sectors is a key reason. Earnings in those groups are expected to grow 29.5% and 16.6%, respectively. That includes giants like Netflix, Meta, and Alphabet—names less sensitive to tariffs and inflation swings. Another surprising winner? Utilities. Thanks to the AI boom and rising power demand, even this traditionally stable sector is now posting solid earnings growth. These outliers are helping to stabilize broader markets. Analysts at Goldman Sachs and Bank of America have both raised their S&P 500 targets, citing “Corporate America Exceptionalism.” Companies are navigating tariffs better this time. Inventory buffers, pricing power, and cost-cutting are helping offset policy disruptions. That’s giving investors a reason to stay optimistic—for now.
Investors Prepare for a Volatile Second Half
Looking ahead, investors are preparing for more volatility. Inflation could stay sticky. Tariffs may expand. And the Fed isn’t likely to act fast. But earnings growth—especially in resilient sectors—offers a cushion. Markets are pricing in just a 4.7% chance of a rate cut this month. A month ago, that number was 20%. Expectations are shifting. Now, the focus is on Q3 and beyond. If corporate profits rebound and inflation eases, the outlook could brighten. Still, risks remain. Political uncertainty, global trade tensions, and policy shifts keep investors on edge. But as long as earnings hold up, the stock market may keep climbing—even if the road gets bumpy.