Market Backdrop
Equities are strong, backed by several factors. Oil has eased to just above $82 a barrel. The benchmark 10-year Treasury yield has pulled off recent highs above 4.7%. The dollar has softened too. The S&P 500 hit an all-time high last Thursday, and the small-cap Russell 2000 closed at a record high last Friday. Optimism holds despite geopolitical risk. Markets pushed aside weaker-than-expected retail sales data from last week, along with the PPI and CPI inflation readings, since inflation came in on a year-over-year basis.
The Week Ahead: Retail Earnings and the Consumer
The economic calendar is light, but a wave of earnings is coming. The next possible catalyst to the upside is retail earnings. Walmart (WMT) reports Thursday. Also reporting: Target (TGT), Home Depot (HD), Lowe's (LOW), TJX (TJX), and Ross Stores (ROST) on the specialty side.
The health of the consumer is the key question. Consumer spending is nearly 70% of GDP. The weak retail sales figure may have been a pull-forward, since Amazon (AMZN) Prime Day data landed in June instead of July, which could have skewed the numbers. The Atlanta Fed GDPNow is tracking about 5% for this quarter, though that may not hold.
The main focus this week is the Fed minutes, out Wednesday afternoon, which may show ongoing internal disagreement. Traders want to know if spending is holding up even as savings rates have pulled back and consumers make different choices. The open question: is the K-shaped economy still working, and is the affluent consumer still spending?
Apple (AAPL): Upgrade and the Price Problem
Apple got an upgrade from Rothschild, tied to a more bullish iPhone outlook and a possible premium foldable phone. The analyst set a $400 price target, matching the street high. The call expects solid double-digit percentage growth for the new phone, with iPhone sales growing 12% annually, or 14% above consensus, through fiscal 2030. The high-end, higher-margin products should do well.
The stock has pulled back 11% from recent all-time highs. The main concern is rising prices. Apple has already raised prices on the iPad and the Mac due to component costs. It plans to release a batch of new phones, including a limited-run foldable iPhone that will likely sell out. But price hikes are coming - the new phones may run $100, $150, $200, or more above the prior iPhone 17 models.
That raises two risks. How will higher prices hit the consumer? And will the upgrade cycle stretch out, so people replace their phones less often? A separate concern: Apple is trying to source memory chips from Chinese suppliers, but a couple of members of Congress said Apple should not be allowed to buy from CXMT or other Chinese memory chip makers. The bull case rests on the consumer staying resilient and wanting to upgrade.
Nvidia (NVDA): Spreading the AI Risk
Nvidia and OpenAI are reportedly close to a major financing deal for an Ohio data center campus. This helps Nvidia by taking some financial risk off its plate. Per a Wall Street Journal report, Nvidia's exposure drops from $250 billion to less than $120 billion.
This follows an announcement early last week that a group of major finance players - including BlackRock (BLK), Blackstone (BX), Goldman Sachs (GS), and others - will help fund a $500 billion investment for Nvidia, which also cuts its exposure. On Friday, Nvidia took a large stake in SpaceX, which is doing well.
The cyclical pattern here is companies investing in Nvidia while Nvidia invests in other companies. Earlier worries about that loop are easing because Nvidia is diversifying how much of its own money goes into the AI infrastructure buildout. The financing structure is a bullish signal for the stock.
