July 24, 2024: Stay Focused on Earnings

Last week’s economic releases delivered a mixed picture. On the one hand, a better-than-expected retail sales report signaled that consumer spending continues to expand—at a slower rate than last year, but expanding nonetheless. Upward revisions to May retail sales added to the market’s positive interpretation of the report.

On a less positive note, last week’s report on unemployment claims reaffirmed that the labor market is cooling. While Federal Reserve officials might desire that tighter monetary policy lead the labor market to cool, those officials would prefer that the labor market not freeze. Last week’s report of modest increases in initial and continuing jobless claims is, at this point, consistent with the former outcome.

Amid these mixed economic signals—and the news that President Joe Biden has withdrawn from the presidential election—investors are at risk of forgetting the most important factor affecting stock returns: earnings. Expectations for this quarter’s earnings have remained stable for several months—unlike previous earnings seasons in which estimates have moved lower in the months preceding initial reports. The stability of this quarter’s estimates reflects broad optimism on this quarter’s earnings, which are now estimated to grow at 9% over the same period last year. Earnings reports from market heavyweights over the next two weeks will prove whether that optimism is well founded.

Weekly Market Update: July 24, 2024