US stocks near peak as inflation data, bank earnings test valuations
The S&P 500 sits just shy of its record high heading into a pivotal week where June inflation data and major bank earnings will determine if current valuations are sustainable.
The S&P 500 closed out its second consecutive weekly gain, leaving the benchmark less than 1% below its early June record closing high. The index has climbed more than 10% year-to-date, demonstrating notable resilience against sharp swings in semiconductor stocks and escalating geopolitical tensions between the United States and Iran. Investors are now turning their attention to a dense calendar of economic data and corporate results that will dictate the market's near-term trajectory.
Tuesday’s June US Consumer Price Index release is the week's most critical macroeconomic event. Market participants will scrutinise core inflation figures, which exclude volatile food and energy prices, for evidence of sticky underlying price pressures. A hotter-than-anticipated print could solidify expectations that the Federal Reserve will keep interest rates higher for longer or potentially enact another rate increase before year-end. Wednesday’s Producer Price Index will supplement the inflation picture, while Thursday’s retail sales figures will reveal the current stamina of the American consumer.
Geopolitical dynamics in the Middle East are reintroducing supply-side risks to the inflation calculus. Fears that attacks could disrupt global shipping lanes pushed Brent crude to roughly $76 a barrel last week. Although this remains comfortably below the $100-per-barrel level that typically triggers systemic market anxiety, a sudden escalation could reverse the recent downward trend in energy prices. That easing trend had previously provided central banks with greater flexibility to hold off on further monetary tightening.
Against this macro backdrop, the second-quarter earnings season kicks into high gear. JPMorgan Chase and Goldman Sachs lead the financial sector reports on Tuesday. The reporting slate broadens later in the week to include Netflix, BlackRock, and Johnson & Johnson, offering a cross-section of corporate health. Data from LSEG IBES indicates S&P 500 firms are on track to post a 23.7% year-on-year surge in second-quarter earnings, signalling what could be one of the strongest reporting periods in years.
This anticipated earnings boom has been a central pillar supporting equity valuations in 2024. However, trading so close to record highs leaves little room for error. Companies must not only meet elevated profit expectations but also provide optimistic forward guidance to satisfy a market that is simultaneously navigating persistent inflation uncertainty and fragile energy supply chains. Any shortfall in corporate performance or negative shift in inflation data could quickly trigger the heightened volatility investors are currently pricing in.
