This summer has seen the market set a series of all-time highs, largely driven by speculation on Wall Street that the Federal Reserve will cut interest rates at month's end. Last week, Fed Chair Jerome Powell testified before Congress, saying central bankers "would act as appropriate to sustain the expansion"—which traders interpreted as confirmation a rate cut is coming.
Traders will get a distraction from the Fed this week, too, as earnings season kicks off in earnest. Banks and other financial services companies will report results, giving traders a sense of how corporate America fared in the second quarter—and what companies are forecasting. There's also a closely watched monthly retail sales report slated for this week.
Spending among consumers has held up, with steady increases in spending much of this year. But corporate America is more cautious about profitability ahead, partly because of ongoing trade spats. Amid concerns about a slowdown, Wall Street is trying to decide whether companies or consumers are a better gauge for where the economy is headed.
Here's what you need to know about what's happening and how it could affect your bottom line:
What's happening: Earnings season heats up this week, dominated by banks and other financial services companies reporting results for the second quarter. Expect results from Citigroup, Goldman Sachs, J.P. Morgan Chase, Wells Fargo, Charles Schwab, Bank of America, Morgan Stanley, and American Express. Some popular consumer companies also are expected to report results this week, including United Airlines, eBay, and Netflix.
Why it matters: Traders use these results—both what companies report for the prior quarter and what they project for the future—to determine how to price individual stocks. Companies have warned that second-quarter results could be brutal. Analysts project earnings for companies in the S&P 500 declined 2.6% from the prior year.
What it means for you: If you own individual stocks, expect some price swings. Shares of Netflix, for example, have seen a one-day spike or slump of almost 13% after the company reports earnings, on average, according to Bespoke Investment Group. Bigger picture: If earnings are even weaker than expected, it may fuel concerns that the U.S. economy is slowing, and the market could take a temporary downturn.
What's happening: The monthly retail sales report for the month of June is scheduled for release Tuesday. This report tracks how much Americans spent on everything from clothing to cars to furniture to dining out.
Why it matters: Economists expect retail sales slowed in June, compared to May's report, which showed an uptick. Even amid signs the economy is slowing (gross domestic product growth is projected to moderate in the second quarter, while business investment has slowed), consumers have yet to cut back—and such spending accounts for more than two-thirds of gross domestic product, so their purchases have helped keep the economy afloat. If Americans finally do start holding onto more of their money, that could cause the economy to slow more than it already has.
What it means for you: Even if you haven't changed how you shop, what your neighbors do matters to the overall economy. The Fed is looking to justify its likely decision to cut interest rates, and slower consumer spending would be another reason for doing so. If central bankers cut rates, as Wall Street expects, that will make it cheaper to borrow money and ideally boost spending again.
Much of this month's market news will be dominated by the lead-up to the Fed meeting. That said, earnings season will be a distraction from that as traders dive into the specifics of individual companies.
Regardless of what happens in the coming weeks, don't make any changes to your long-term investing strategy based on short-term events. The market's recent rally is a reminder to take a long-term view and stay the course.
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