U.S. stock markets are heading into a jam-packed week that could test their recent strength, with major corporate earnings, a closely watched inflation report, and fresh developments surrounding Iran all set to demand investors’ attention.
The S&P 500 wrapped up its second consecutive week of gains, pushing the benchmark index up more than 10% for the year and within striking distance — less than 1% away — of its record closing high from early June. That weekly performance came despite sharp swings in semiconductor stocks and a renewed flare-up in U.S.-Iran tensions that brought concerns about the ongoing Middle East conflict and potential energy price spikes back into focus.
The week ahead brings the launch of second-quarter earnings season, led by several of the country’s biggest banks. A string of important economic reports is also on the calendar, with the U.S. consumer price index — a key measure of inflation — taking center stage.
“You’ve got a number of crosscurrents from geopolitical headlines, the start of earnings season, some CPI data on the horizon and some skepticism around the AI trade,” said Michael Reynolds, vice president of investment strategy at Glenmede. “It just seems like a lot of factors coming to a head all at once.”
OIL PRICES AND IRAN BACK IN FOCUS
In recent months, investors had largely assumed the Middle East conflict would remain contained, and a blowout first-quarter earnings season helped push stocks higher. But oil prices climbed this week as concerns mounted over renewed attacks on shipping and their effect on global supplies.
Brent crude was last trading near $76 a barrel — well below the $100 level hit earlier this year that analysts consider more alarming for financial markets. Even so, investors said they are keeping a close eye on any developments tied to Iran, including the effect on shipping lanes and any potential widening of the regional conflict.
“It’s a very difficult environment to make strategic investment calls when the situation … in Iran is so fluid,” said King Lip, chief strategist at BakerAvenue Wealth Management in San Francisco.
The recent easing of oil prices could reduce pressure on global central banks to raise interest rates further to fight inflation. For the U.S. Federal Reserve, strategists at Macquarie wrote in a Thursday note that “what happens to the price of oil may determine the level of the urgency of the next rate hike — i.e., whether it comes in September or October.”
INFLATION DATA COULD SHIFT RATE EXPECTATIONS
The June consumer price index report, due out Tuesday, could add more pressure on the Fed. Investors will be paying particular attention to the core CPI figure, which excludes energy prices, to see whether rising oil costs this year have been filtering into broader inflation.
“If we get hotter inflation or we see signs that inflation will remain elevated for the next few months, it could push odds of a rate increase higher by year end,” said Anthony Saglimbene, chief market strategist at Ameriprise.
The producer price index — another inflation measure — follows a day later. Monthly retail sales figures on Thursday will offer a window into how much consumers are still spending.
Higher interest rates can weigh on stocks by making borrowing more expensive for both businesses and individuals. Investors’ expectations for near-term rate hikes increased after a surprisingly hawkish Federal Reserve meeting last month — the first under new Chair Kevin Warsh. Minutes from that meeting, released this week, revealed growing concern among policymakers about inflation. Warsh is expected to deliver his first congressional testimony on monetary policy next week.
MAJOR BANKS KICK OFF EARNINGS SEASON
JPMorgan Chase and Goldman Sachs are among the big-name banks set to report results on Tuesday, which will help set the tone for what analysts expect to be a strong overall earnings season.
Their reports may also shed light on how consumers are holding up financially, particularly through credit card data, and offer a broader look at credit conditions across the economy.
“If you’re seeing healthy earnings and outlooks coming from the big banks next week, it’s a sign that the overall economy, the overall environment for businesses and consumers held up relatively well in the second quarter,” Saglimbene said.
Netflix, BlackRock, and Johnson & Johnson are also among the high-profile companies scheduled to report next week. According to data from LSEG IBES, S&P 500 earnings are projected to surge 23.7% compared to the same period a year ago.
“We’re in store for a really strong quarter,” said Glenmede’s Reynolds. “A lot of these companies are going to have to put up some good numbers to really justify those expectations.”
