Benign Inflation, Malign Obligation

Market breadth expanded this week as the S&P 500 equal-weight index outperformed market-cap-weighted indices, signaling a healthier rally. Corporate earnings for Q2 demonstrated robust year-over-year growth, even after discounting one-off unrealized gains. Inflation data, including CPI and PPI, remained benign, prompting markets to scale back expectations for Federal Reserve rate hikes in September. While retail sales appeared weak, the decline was largely attributed to the timing of Amazon Prime Day rather than fundamental consumer distress. Meanwhile, the bond market faces pressure from rising fiscal deficits, with the long end of the yield curve reflecting increased risk premiums. Despite a current lull in high-tier economic data, market participants remain focused on upcoming manufacturing and services PMI reports to gauge the trajectory of the broader economy.