It’s summer, and that means it’s time to stop worrying and unwind, right?
At least, that seems to be the market mantra as stocks climbed to new highs Thursday, supported by positive economic data. But there are signs this rally might be
overheating.
The S&P 500 logged its ninth record close of the year on Thursday, bolstered by a fall in jobless claims filings and surprisingly strong retail sales for June.
As bank chiefs put it this week, with unemployment at 4.1%, consumers should be able to keep spending and driving the economy. And Americans are feeling good, with the net financial assets of U.S. households sitting at
366% of GDP at the end of the first quarter, up from 358% at the end of 2019, according to UBS analysts.
That positivity is coming even as interest rates remain at relatively high levels. Perhaps investors agree with Federal Reserve Gov. Christopher Waller, who argued Thursday that tariffs likely won’t lead to a lasting increase in inflation and the way is clear for rate cuts. In that case, even the Aug. 1 deadline for the imposition of import levies might not derail the stock market.
Still, it’s worth noting the signs of speculative frenzy. The so-called Bitcoin treasury strategy, popularized by MicroStrategy, has spread like wildfire across the market. While crypto legislation does promise to broaden the appeal of digital currencies, such a crowded trade has the potential to reverse sharply. More broadly, social-media driven increases for stocks such as Opendoor Technologies—which has tripled in a month—points to a return of the meme-stock phenomenon.
It’s never obvious what will break a calm spell, but investors should be wary of relaxing too much this summer.
—Adam Clark
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Netflix’s Outlook Beats Expectations. A Weaker Dollar Helps.
Netflix beat second-quarter earnings expectations, fueled by new subscribers, price increases, and a growing advertising business. The streaming giant also gave a better-than-expected revenue
forecast for the third quarter and full year. A weakened U.S. dollar is helping, it said in a shareholder letter.
- Netflix reported earnings of $7.19 a share and revenue of $11.08 billion, up nearly 16% from a year ago. While other entertainment companies struggle with challenged cable businesses, Netflix has become the
dominant global streamer, surviving competition from Disney, Amazon, and Apple with hits like Ginny & Georgia and Squid Game.
- It
expects content will continue to drive viewership in the second half of the year, including the return of its popular Wednesday and a final season of Stranger Things.
- Netflix got 56% of its second-quarter revenue from outside North America. When the dollar weakened, Netflix earned foreign revenue in strengthening currencies like the euro, but booked it in the weakening dollar.
- The company’s third-quarter outlook is above expectations. Netflix expects earnings of $6.87 a share and revenue of $11.56 billion. It said the operating margin in the second half of the year would be lower than the first half because of sales and marketing costs for a larger content slate.
What’s Next: Netflix raised its full-year revenue forecast to between $44.8 billion to $45.2 billion and its operating margin forecast to 29.5%, but said the majority of the revenue forecast increase “reflects the recent depreciation of the US dollar vs. most other currencies.”
—Adam Levine and Janet H. Cho
Tariffs Are Quietly Doing Damage on Inflation. More Is Coming.
There are signs that tariffs are pressuring prices higher. It isn’t as dramatic as in early 2021, when inflation jumped nearly a full percentage point each month from February to May. But the effects are trickling into the overall cost of goods and core goods, which exclude food and energy.
- A number of factors, including a lack of significant gains in auto prices, ample inventories, and price-sensitive consumers, are masking the extent of the shift in prices, but New York Fed President John Williams said Wednesday night that they are creeping into core goods prices.
- An index of the cost of furnishing and running a household, in particular, rose 1% in June, after increasing 0.3% in May, the Bureau of Labor Statistics reported this week. Another category that includes sporting goods, movie tickets, and theme-park admissions increased 0.4%.
- Apparel prices, which showed little effect from higher tariffs in recent months, climbed 0.4% in June, reversing months of declines. And the overall cost of core goods saw the largest monthly increase since February.
- The breadth of the rising inflation is important, said
Omair Sharif, president of the research firm Inflation Insights. He pointed out that nearly all core goods prices outside of autos increased in June, suggesting that companies in general are starting to pass their tariff costs on to their customers.
What’s Next: While investors and economists are in a waiting game, they are waiting for prices to rise, rather than to stall out. The consensus view is that even with President Donald Trump pausing or reducing the “Liberation Day” levies he announced on April 2, inflation is likely to climb to at least 3% this year.
—Megan Leonhardt
Crypto Gets a Win as Stablecoin Bill Passes Congress
The crypto industry notched a major victory on Thursday, securing legislation that could lead to digital assets becoming a significant part of Americans’ everyday lives.
- On
Thursday afternoon, the House of Representatives in a 308-122 vote passed a bill that would set rules for so-called stablecoins, a type of cryptocurrency with its value pegged to the dollar and backed by reserves. It had already passed the Senate, so it now goes to President Donald Trump’s desk to be signed into law.
- The bill, called the Genius Act, is the culmination of a multiyear effort to lobby lawmakers over to crypto’s cause—and to finance the campaigns of others who promised to support the industry.
- There’s no better illustration of the crypto industry’s lobbying success than Trump. He was an outspoken Bitcoin skeptic during his last presidency but has since taken millions of dollars
in crypto-tied campaign contributions, launched several of his own digital-assets ventures, and said he has
