Record Highs, Cooling Inflation, and the Retail Sales Test

Grant Calloway

Seven thousand eight hundred twenty six point five zero. That, uh, that is where S and P five hundred futures are hovering right now, up about zero point zero five percent in the early pre market. Coming off another fresh, shiny record high yesterday, and frankly, this tape is tighter than a drum.

Grant Calloway

What pushed us over the top on Thursday? It was that wholesale price print. The producer price index, which measures wholesale prices, was flat in July after falling by zero point one percent in June. The street was bracing for plus zero point two percent, so getting a flat zero point zero percent month over month is, well, it is music to the ears of anyone sitting long equity risk.

Grant Calloway

Back when I was on the floor of the New York Stock Exchange, days like this had a specific smell. You could feel the desk traders lining up their orders, waiting for that opening bell, what I still call the greatest four hundred milliseconds in capitalism. But you can't just look at the S and P in a vacuum, you have to run the whole board.

Grant Calloway

Looking across the cross asset picture this morning, Dow futures are trailing a bit, down zero point thirteen percent at fifty three thousand eight hundred sixty seven. Nasdaq futures are picking up some slack, up zero point twelve percent at thirty thousand two hundred twenty five point five zero. Over in the bond market, the ten year Treasury yield is sitting right around four point six six one percent, while the two year yield is hovering near four point two zero percent. And over in commodities, Brent crude is up one point zero three percent to eighty two dollars and nine cents a barrel, mostly as traders keep a real close eye on supply chatter around the Strait of Hormuz.

Grant Calloway

As for individual stock movers gapping ahead of the bell, we have got semiconductor equipment maker Applied Materials reacting to their post earnings forward guidance. Luxury handbag maker Tapestry is swinging as Wall Street scrutinizes their retail margin execution. And healthcare distributor Cardinal Health is catching steady defensive inflows, which, uh, tells you some funds are still keeping one foot in the bunker even at record highs.

Grant Calloway

Quick note before we step into the consumer data. If you are like me and you are drowning in hundreds of pages of SEC filings every morning, check out Jellypod at jellypod.com. It turns those massive market filings into super clean, digestible audio summaries so you can listen on your morning commute before the bell rings. Go check out jellypod.com.

Grant Calloway

Now, uh, the real test for this market today lands at eight thirty A M Eastern time. That is when we get the July Retail Sales number, followed closely at ten A M by the preliminary August University of Michigan Consumer Sentiment reading. That combination is going to set the tone for whether this market can hold eight thousand territory or if we are walking into a trap.

Grant Calloway

Here is the core tension trading desks are fighting over right now. On one side, you have the bulls. They look at S and P seven thousand eight hundred, they look at strong nominal wage gains, and they argue the wealth effect is doing the heavy lifting. If your portfolio is at an all time high and your home value is holding, you keep buying the extra pair of shoes, you keep booking the weekend trip. To the bull camp, cooling inflation plus a steady consumer equals the ultimate soft landing setup.

Grant Calloway

But, uh, let us not get giddy over one good inflation beat. You have to look at the wreckage under the surface, or at least the cracks forming in the foundation. Remember what happened in the labor market just days ago? Nonfarm payrolls fell by a seasonally adjusted twenty three thousand last month, while the unemployment rate edged lower to four point one percent. That unexpected drop of twenty three thousand jobs was a real cold bucket of water on the growth story.

Grant Calloway

The bear case is that consumers are running on fumes. Credit card delinquencies are creeping up, lower income brackets are getting stretched thin, and a negative payroll print is usually the first sign that corporate America is starting to pull back on headcounts and capital expenditure. If consumer spending cracks here, those lofty retail revenue expectations are going to come down fast.

Grant Calloway

On deck for the rest of the morning, we also get June Business Inventories at ten A M Eastern. But my advice to you on the floor or behind a screen today is simple. Do not trade your opinions, trade the price action. Respect the tape, watch how the market digests that retail sales number, and keep your risk managed.

Grant Calloway

Quick reminder, this show is strictly for informational and educational purposes and does not constitute investment advice. Have a great trading day, everybody, and stay disciplined out there.