Amazon Prime, Warsh Sublime

Last Week

Corporate earnings reports, the War, and the FOMC meeting generated much excitement and confusion that led to a soft bond market and a modestly positive stock market. The yield on longer-term Treasuries climbed to their highest level in decades, with the 10-year rate reaching 4.75%, up 7 basis points. The S&P 500 advanced 1.1%, the Nasdaq Composite climbed 1.6%, while the Russel 2000 treaded water. Advancing issues modestly outnumbered declining issues, with Amazon leading the Consumer Services sector to dramatic outperformance and the Utility sector faring the worst.

Corporate earnings were spectacular, primarily thanks to stellar results from Amazon, with S&P 500 year-over-year composite earnings growth rising to 47.4! Amazon’s results accounted for most of the growth, similar to Alphabet’s impact the week earlier. In both cases, the reported earnings included substantial gains from their investments in AI start-ups, which are not from continuing operations. Nevertheless, strong earnings growth has outpaced the increase in equity prices, resulting in the forward P/E multiple contracting to 19.7, below its 10-year average.

There was no progress in the Middle East peace process. The rhetoric remained bellicose, but the threats of escalation have gone without action. In short, the song remains the same. Oil prices sagged, suggesting traders believe the conflict will resolve without permanently raising energy prices.

Wednesday was a terrible day in the markets, as Kevin Warsh’s statements suggested a hawkish outlook. Yet, the Federal Reserve held its key interest rate unchanged for the fifth straight meeting, with three FOMC members dissenting, all preferring a 25-basis-point hike. The Chairman was forceful in saying that the 2% inflation target was the key issue for the Fed, which left inquiring minds wondering why the Fed did not raise rates and what data would prompt that pivot.

The song also remained the same on the Chicago Sports Scene, with both the Cubs and the Sox performing reasonably well.

This Week

Corporate earnings reports will be in focus, with 136 of the S&P 500 reporting second-quarter results, and the Street faces SpaceX’s first earnings release as a public company, garnering much attention. AMD headlines the earnings parade in the tech sector.

The July employment report on Friday will be the key economic data release. Economists forecast that the U.S. economy added 88,000 jobs in July, up from 57,000 in June, while the unemployment rate held steady at 4.2%.

Then there is the war. Once again, threats of a massive strike against Iran remain on the table, as does the aside that peace negotiations could resume at any time.

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