Last week, the S&P 500 briefly hit record highs, and the
Nasdaq drew fresh enthusiasm for AI infrastructure spending. However, Friday
reversed some of that optimism, as sluggish retail sales and rising oil
prices tied to Strait of Hormuz tensions pointed to a slowing consumer
colliding with a potential energy shock.
Here•s how the major indexes performed.
Stock Index Performance
What•s Driving the Numbers
The consumer signal. Employment
cooled sharply in July, coming in well below expectations, while inflation eased to its slowest annual pace in years. At the
same time, retail sales posted their sharpest drop in over a year, and consumer
sentiment sank well below forecasts. What matters is not that inflation is
tamed. It•s that the consumer may be faltering just as energy costs rise.
Oil and the Strait of Hormuz. Tanker traffic through
the strait slowed to near a standstill after attacks on additional vessels, and
U.S.-Iran talks made no progress. Oil prices climbed sharply last week as a
result. Since the strait carries a significant share of global oil and gas flows,
the impact goes well beyond energy markets. Higher oil prices squeeze consumer
spending and complicate the Fed•s next move, all while lifting inflation
expectations.
Narrow leadership, concentrated risk. Earnings kept
the broader market resilient, with S&P 500 revenue growth tracking near its
highest pace since late 2021. But equity gains stayed concentrated in AI
infrastructure names, where strong results and upbeat spending forecasts drove
sharp rallies. The Dow•s decline against gains in the S&P 500 and Nasdaq
underscores that narrowness, with the market still favoring AI and growth
exposure over more economically sensitive corners of the market.
The Week Ahead
Tuesday•s (August 18th) housing and industrial data, plus
Friday•s (August 21st) flash Purchasing Managers• Index (PMI) report, will show
if the recent weakness in jobs and retail numbers was a warning sign or a blip.
The Fed•s July meeting minutes, due Wednesday (August 19th),
should shed some light on how Fed officials weighed rising oil prices tied to
Strait of Hormuz tensions. A dovish tone would favor Treasuries and
rate-sensitive stocks.
