Retail Sales are Last Rung on Weekly Data Ladder

**Keith Lansford** (0:05)
Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.
I'm Keith Landsford, and here is Schwab's early look at the markets for Friday, August 14th. A busy week of data culminates with July retail sales at 8:30 a.m. Eastern time. After that, many participants might head to the hills for another summer weekend, keeping trading volume light before next week's parade of earnings from big-box retailers. The weekend approaches with major indexes at or near all-time highs on pace for another positive week. Retail sales growth is seen at 0.2% monthly, according to briefing.com consensus, the same as in June. Extracting auto sales, analysts see a 0.2% figure, though retail sales need to be taken in context, as they don't adjust for inflation. June's retail sales slowed from spring peaks, though lighter inflation and falling gas prices likely caused that. The control group sales that subtract sales from auto dealers, building material stores and gas stations, rose a healthy 0.7% in June, following a 0.9% rise in May. Control group sales, which feed into gross domestic product or GDP, are likely to again be the focus today.
Today brings an update of the Atlanta Fed's third quarter GDP Now estimate, last at 5.8%. This estimate is a so-called nowcast, meaning it's constantly shaped by data coming in and could change dramatically before the actual government estimates come out in October. Yesterday's July producer price index or PPI showed wholesale inflation slowing in July. PPI was flat monthly and core PPI, excluding food and energy, climbed 0.2%.
Annual July PPI rose 4.7% down from a revised 5% in June, and the government revised June's PPI reading to negative 0.1% and positive 0.4% respectively. Most of the July decrease was attributed to lower gas prices. On a less friendly note, several components that affect the Federal Reserve's favored personal consumption expenditures or PCE price index due later this month rose, especially on the health side. PPI components that feed into PCE suggest a somewhat firm print in July, said Kevin Gordon, head of Macro Research and Strategy at the Schwab Center for Financial Research. We'll see what FOMC members say, but on balance, the relief from yesterday's inline CPI and water PCE-related PPI components today probably cancel each other out. Wednesday's headline July consumer price index rose 0.1% monthly. In other data Thursday, weekly initial jobless claims were slightly higher than expected at 209,000, up 9,000 from the week before, but near historic lows.
After the data, odds of a Fed rate hike in September dropped to 35% from 40% on Wednesday and 55% a week ago, according to the CME FedWatch tool. However, odds of at least one hike by the end of the year reached 66%, not surprising, considering that inflation remains well above the Fed's 2% target, with relatively benign July inflation readings. The 30-year bond auction Thursday generated average demand after two auctions earlier this week found strong buying interest. Yields were already lower for the day due in part to falling oil prices and didn't react much to the auction results, briefing.com said.
After retail sales, the University of Michigan Consumer Sentiment Preliminary August data is due at 10 a.m. Eastern time today. Consensus from briefing.com is 54.5% down from 55.2% in July and still scraping near historic lows. In July, long-term inflation expectations, the report's key reading held steady at 3.3%. The Fed keeps close watch on that, hoping higher prices don't become ingrained in consumer thinking, which can cause inflation to build on itself. Earnings slow at the end of the week before accelerating again as retail firms begin their long string of results, starting with Home Depot on Tuesday. Result could shed light on consumers. Many headlines emphasize the K-shaped economy, where the top 10% drive most purchases, though lately some cracks have formed, partly due to tax refunds and lower savings rates. Also Home Depot and Lowe's, ironically, might benefit from a slow housing market. Homeowners might focus on repairs and projects, unwilling to trade low rates for higher ones if they move. Higher gas prices, however, could spook customers, leading them to discount retailers or store brands. Late Thursday, investors pondered earnings from Applied Materials, released after Thursday's close. Results topped estimates and the Semiconductor Equipment Company guided above Wall Street's expectations, but shares initially lost 4% in post-market trading. Through late Thursday, 455 of 500 S&P firms have reported, of those, 87% beat analysts' earnings-per-share estimates and 68% exceeded revenue estimates according to Bloomberg data. On Thursday, the S&P 500 index scrambled to new all-time highs carried by Tech and Magnificent 7 names. The usual memory chip suspects that got sold off in July revived the last two weeks and saw a heavy buying Thursday. These included Sandisk, SK Hynex, Western Digital and Micron. However, software, sometimes left behind when chips climb, held its own Thursday. Software earnings have mostly been solid in the second quarter, giving the sector a tailwind after its early 2026 tailspin. Crude slid despite lack of progress in Iran. US oil inventories climbed more than expected last week, according to government data. Also the International Energy Agency said it expects global oil demand to fall more than previously expected this year. Seven of 11 S&P 500 sectors climbed Thursday, led by communication services as alphabet and meta-platforms both rose amid general positive sentiment around AI and cloud names. Energy fell as oil lost ground. Materials also lagged, hurt by a 1.4% drop in gold and 1.7% losses for silver. Stocks moving Thursday included Cisco falling 8.4%, despite quarterly results that slightly surpassed analysts' revenues and earnings per share estimates. Guidance for the current quarter topped expectations, too, thanks to significant momentum for AI infrastructure. With shares up 60% year-to-date heading in, profit-taking might explain today's losses.