“Inflation Data and Earnings Reports Set to Shake Up Stock Market After Record Highs”

Inflation and Second Quarter Earnings Reports in Focus for Investors

As investors return from a holiday-shortened week that saw stocks closing near record highs, they will be greeted with key economic data and the start of second quarter earnings reports. With job growth slowing and the Federal Reserve potentially considering interest rate cuts in September, the release of June’s Consumer Price Index (CPI) on Thursday will be closely watched. Additionally, Federal Reserve Chair Jerome Powell’s semiannual testimony before Congress will be a key focus for investors.

On the corporate side, some of America’s largest financial institutions, including JPMorgan, Wells Fargo, and Citi, will kick off second quarter earnings season on Friday. Results from PepsiCo and Delta Air Lines earlier in the week will also be in focus.

Last week, the S&P 500 rose nearly 2% and the Nasdaq Composite rallied over 3%, both finishing the week at record highs. The Dow Jones Industrial Average gained a more modest 0.5%.

The case for a September rate cut by the Federal Reserve is building following the release of the June jobs report, which showed signs of a slowing labor market. Economists believe this could lead to a rate cut in September, with investors already pricing in a 75% chance of a rate cut by then.

Inflation remains a key factor, with the June CPI report set for release on Thursday. Wall Street economists expect a slight slowdown in headline inflation, with prices rising 3.1% annually in June. Core CPI, which excludes food and energy prices, is forecast to rise 3.4% over last year.

Earnings season is in full swing, with Financials in particular focus. While the sector is not expected to lead in earnings growth this quarter, analysts forecast a 4.3% year-over-year growth. Following a climb out of an earnings recession in 2023, companies now face a high bar to beat this reporting season.

As investors navigate through second quarter earnings reports and economic data, they will be looking for clues on the direction of interest rates and the overall health of the economy. With the market trading near record levels, the reward for beating expectations may be smaller than in previous quarters, leading to cautious optimism among investors.

Overall, the coming week promises to be a busy one for investors, with key economic data, earnings reports, and Federal Reserve updates shaping market sentiment and direction. Stay tuned for more updates and analysis as the week unfolds.