Michael Reinking:
Good morning. I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and you are listening to the Market Storylines podcast on the Inside the ICE House Podcast feed. First and foremost, I'd like to take a moment to thank everyone for all of the positive feedback we received after our first episode. We will strive to continue to bring you informative and digestible information and hope to become a regular part of your weekly routine. So let's get to this week's storylines. I'd be remiss if I didn't start today's conversation with just how quickly markets have snapped back after last week's volatility. Now it is the summertime, so if you happen to be on vacation last week and just took a look at your broker statement on Friday, you wouldn't have even noticed. As the S&P 500 ended the week essentially unchanged after falling over 4% at the lows on Monday morning.
Now, markets have continued to push higher this week. As we're taping midday on Thursday, the S&P 500 is up about 3% back over 5,500. It seems like investors have quickly come to the same conclusion we did last week that the drawdown was related to an aggressive unwind of crowded trades and not something more perilous. This week's economic data has also helped as the inflation data looked tame while the growth side of the equation also came in better than expected, squashing the short-lived growth scare. Now, this rally has definitely happened faster and with less volatility than I would've initially expected. In fact, we've seen the VIX trade back with a 15 handle, the fastest decline from over 35 in history. This week, economic data has come back to the forefront and the trading activity shows just how hypersensitive markets are to that incoming data. The focal point early in the first half of the week was the inflation data with PPI coming in slightly better than expected, which triggered a big rally on Tuesday, stealing the thunder from the more closely filed CPI report, which was essentially in line with expectations on Wednesday.
Now that data continues to point to a moderation inflation with headline CPI falling back below 3%, hitting the lowest level since March of 2021. Now, for much of the last two years, inflation data has been the sole focus of the Fed and also caused the biggest market moves. But a couple weeks ago, Chair Powell did his best Bob Dylan impersonation, telling investors the times they are a change in. With the Federal Reserve once again, shifting its focus back to its dual mandate of price stability and full employment from a sole inflation fight focus. From my perspective, there was an asymmetric risk in this week's inflation data. Unless that data came in really hot, it was not going to be the determinant factor in the Fed's next move. That is going to come in the way of the growth side of the equation. This morning's retail sales came in very strong and claims moderated further, which is suggesting the economy remains resilient.
Now, this week's inflation data does keep the potential rate cut in September on the table, but expectations for a 50 basis point cut have quickly been sucked out of the market. Now, there has been some mixed fed commentary this week ahead of the Jackson Hole Economic Symposium next week. Chair Powell's speech next Friday is the main event, and he's expected to further set the table for a cut, but he may not shift his message too significantly as the recent employment report is looking more suspect. Last week I promised to give you an update on Q2 earnings season. We are in the tail end as this week kicked off the late cycle tech and retail earnings. At this point, over 90% of companies in the S&P 500 have reported, and as per usual, over three quarters of those companies have beaten on the bottom line. Bringing us to one of the key themes, over the last few quarters, companies have had an increased focus on cost-cutting and efficiency gains.
This has helped them maintain margins and boost the bottom line, but we are starting to see signs that persistently high inflation and higher interest rates are beginning to impact aggregate demand with the percent of companies beating top line estimates or revenue estimates coming in below historical averages seen over the last 1, 5 and 10 years according to FactSet. Now, overall, the tone from management teams has been cautious, but once again is pointing to a moderation in activity, not suggesting something more perilous. The uncertain economic backdrop has been called out with weakness in China and longer sales cycles, some of the most mentioned reasons. Consumer facing companies have consistently pointed to weaker spending trends, especially at the low end of the income scale. However, this morning, the largest retailer in the U.S., Walmart had very solid results. The company has been humming on all cylinders benefiting from their unique position in grocery and the migration of the high-end consumer.
They continue to see a resilient consumer and are not seeing any signs of a significant downshift. And in fact, highlighted positive trends in general merchandise for the first time in nearly three years. Now, this coupled with what we've heard from travel related companies throughout the quarter does suggest that we may be seeing spending between services and goods moving back into equilibrium. As we close out this week, Friday is options expiration, which is on the third Friday of the month. On this day, we typically see volumes and volatility pick up in the final hour of trade as dealers square up their positions. Now, as we head into next week, we once again enter into a bit of a void of economic data with weekly claims and flash PMIs coming next Thursday, the most important releases. The Federal Reserve will also come back into focus with the FOMC minutes in the previously mentioned start of the Jackson Hole Economic Symposium.
And as we mentioned earlier, it will be a busy week of tech and retail earnings. On a programming note, I will be on vacation next week, but we do have a special guest who has agreed to fill in. So thank you for spending some time with us today. Remember to tune in every Friday to the Market Storylines podcast on the Inside the ICE House podcast feed and rate review and subscribe wherever you get your podcasts. Thank you for listening. I'm Michael Reinking. I'll talk to you again in a couple of weeks.
Speaker 2:
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, express 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 [inaudible 00:06:55] clarity.