Michael Reinking:

Hello, I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and this is Market Storylines. Every week we are here to keep you up to date on the key trends and events driving global markets. It's summertime, but things are not slowing down. We're recording on Thursday afternoon, so let's dive into this week's Market Storylines.

Now last week for the second consecutive week, major U.S. indices traded in a pretty tight range closing on either side of unchanged. Now strength in the megacap tech stocks helped the S&P 500 notch a new all-time high with options expiration keeping the index pinned to the 6,300 strike. Now with the removal of that volatility-suppressing flow, equities resumed along the path of least resistance to start the week. Now the focus this week has been on earnings and trade with the August 1st deadline quickly approaching.

Now on the latter, some deals are starting to come together. On Tuesday evening, President Trump announced a deal with Japan. Now the country will pay 15% reciprocal tariffs on goods exported to the U.S., including autos. Now the country will open its markets to American autos, and agriculture, and also agreed to invest $550 billion in the U.S. The deal came together after Treasury Secretary Bessent's visit late last week, and an election over the weekend where the ruling party lost control of the upper house, raising questions about Prime Minister Ishiba's tenure. Now the deal announcement helped the local markets rally around 5% this week with particular strength in the auto companies.

There continues to be optimism that the U.S. and EU could reach a trade deal with a reciprocal tariff rate of 15%, but the EU continued to prepare retaliatory measures should that not come to fruition. President Trump has said that deals going forward will be between 15 to 50%, while Treasury Secretary Bessent has warned that the administration will be actively monitoring deals on a monthly basis. The markets have responded well to the announced deals as the tariff rates are below some of the previously floated levels. However, the absolute level of tariffs are clearly moving higher, and it will take some time to see how that will impact growth as they gradually feed into economic activity.

Now, moving to earnings. The pace of releases has kicked into high gear this week with about 20% of S&P 500 companies reporting. That as we highlighted last week, following the 25% rally in the S&P 500, expectations have clearly risen. Now the results from financial companies were strong last week and the initial response was muted, but many of those stocks have resumed to the upside this week. Now broadly earnings continue to be pretty solid with companies continuing to execute in a difficult operating environment. The qualitative commentary from management teams is more positive than last quarter, though there's still concern about the impacts of tariffs. Some of the major thematics are consistent as there continues to be very strong demand for AI and energy infrastructure, while there is more caution from consumer-facing companies.

The bulk of the impactful economic data was released this morning, and the story remains very much the same, pointing to a resilient backdrop. Initial claims moderated for the sixth consecutive week falling to 217,000 while continuing claims held steady around 1.95 million. Now the S&P Global Flash PMIs were mixed with a moderation in manufacturing as businesses pulled back activity after building up inventories, and this was offset by some strength in the services sector. And most price components continue to move higher, suggesting there could be more upward pressure on inflation readings, which is the perfect segue into next week's fed meeting.

The central bank is widely expected to leave rates unchanged, much to the chagrin of the administration officials. Last week, Governor Waller laid out a poignant case as to why he believes that the central bank should resume cutting rates, setting up the first dissension since Michelle Bowman dissented last September when she preferred a 25 basis point cut instead of 50 basis points. Recently, she has also expressed a preference for a cut in July, so she could also join Governor Waller, which would mark the first time since 2020 where there have been multiple dissents.

On a side note, President Trump is visiting the Federal Reserve Building project today amidst the continued controversy around cost overruns.

Now next week is setting up to be a busy week with the peak of earnings season, multiple central bank rate decisions, and some key economic data including personal income and spending, PCE and the BLS employment report. The August 1st trade deadline is at the end of the week.

That's going to do it for this week. If you like today's episode, please tell a friend or leave a comment wherever you listen to your podcast.

As a child of '80s, it's with a heavy heart that I sign off today with the passing of multiple icons of that decade this week. Thanks for joining me. I'm Michael Reinking, and I'll leave you with just one question.

What are you going to do when Hulkamania runs wild on you?

Speaker 2:

That's our conversation for this week. Remember to rate, review, and subscribe wherever you listen, and follow us on X at ICE House. From the New York Stock Exchange, we'll talk to you again next week, inside the ICE House.

Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security, or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.