Below are the economic and market highlights for the week:
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Tariffs failed to have much of an impact on consumer prices in June. The Consumer Price Index (CPI) showed prices increased by 0.30%, pushing the annual inflation figure up 2.70%. Core CPI, which excludes volatile food and energy, rose 0.20% for the month and was up 2.90% year-over-year (YOY). Despite tariffs being in the headlines, it was shelter costs that accounted for much of the increase in inflation. In June, shelter costs rose 0.20%, bringing the YOY rate for that specific component to 3.80%. Energy prices also moved higher month-to-month, up 0.90%, driven primarily by a 1.00% rise in gasoline prices as Americans hit the road for summer vacation. However, not every sector escaped the higher cost of tariffs unscathed. Prices for household furnishings and apparel, which are predominantly imported from abroad, rose 1.00% and 0.40%, respectively. Overall, it looks like the combination of strong consumer demand and some tariff effects are keeping inflation above the Fed’s 2.00% target level but they have yet to materialize into the bump in prices that some observers had feared. The fact that inflation keeps resisting the 2% target however should keep the central bank from lowering rates at its meeting later this month.
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Consumers showed little signs of spending fatigue in the face of tariffs and persistent inflation. Retail sales rose 0.60% in June, topping estimates of a 0.10% increase. Spending on goods was strong despite higher prices. Clothing and accessories stores saw sales rise 0.90% while ecommerce sales increased 0.40%. Restaurant receipts also showed surprising strength, up 0.60%. Excluding autos and gas, overall sales climbed 0.60%, indicating consumer spending remains robust.
Markets Push Through Headwinds to Record Highs
Market bulls were put to the test this week by a mix of economic data on inflation, retail sales, and Q2 corporate earnings announcements. Markets passed with flying colors as the S&P 500 and Nasdaq Composite Index managed to hit new all-time highs this week. The beginning of the trading week did, however, start off on a rough footing as investors assessed news announced over the weekend that Washington would be handing down more tariffs. This time it was the European Union and Mexico back in the hot seats with 30% tariffs to be levied and made effective August 1 absent new trade agreements being reached prior to the deadline. As has been the case in recent weeks, investors were quick to shrug off the news, convinced final levies will come in much lower. Instead, investors focused their attention on the week’s economic reports and the start of the Q2 earnings season. Investors took June’s CPI report in stride even though it showed a slight acceleration in consumer prices. While tariffs appear to be having a modest impact on prices, consumers appear unfazed, splurging in June on a broad range of goods and services. The proverbial cherry on top for the markets was the start of the Q2 earnings season this week. With around 59 S&P 500 companies reporting thus far, 81.40% exceeded expectations. This is well above the long-term average of 67% and the prior four quarter average of 76% at this point of the reporting period.
The week’s rally reinforced animal spirits are alive and well on Wall Street and Main Street. Investors and consumers alike continue to invest and spend despite the cloud of tariffs and any inflationary impact they may be having. With Q2 earnings coming in strong and gaining momentum, it appears we are in the midst of a bullishly biased market at least until summer vacations begin to give way to Back to School.
The Week Ahead
Key reports include Durable Goods Orders, S&P Flash PMIs, and Existing Homes Sales.
The Best Dive of Summer
The best dive of summer? Surprise! It’s not the cannonball, the pencil, the bellyflop, or the jack knife. It’s The Manu dive, and it’s scientifically proven to be the absolute best way to make a huge splash in the pool – it’s also very hard to do.
Manu jumping is a decades-old summer tradition where divers attempt to produce the biggest splash possible. The technique has been perfected by the indigenous Māori and Pasifika communities of New Zealand and the Pacific Islands. The secret to making record-setting splashes hinges on a butt-first, V-shaped entry and well-timed underwater follow through. When performed optimally, “popping a Manu” as it’s called can shoot water up as high as to 32 feet in the air.
The ability for a single diver to create such a huge splash caught the attention of a group of biophysicists and bioengineers at Georgia Institute of Technology in Atlanta, GA. According to their website, Georgia Tech’s Bhamla Lab focuses on “cultivating an often overlooked attribute in science: curiosity” to lead to discoveries or inventions that can be made using the biological principles they study. The lab’s work has been featured in Forbes, Newsweek, Science, BBC Science Focus, and more. Most previous splash research focused on minimizing surface disruptions, whether to reduce damage during water landings for mechanical equipment or to perfect an Olympic dive. In the pursuit of science for the sake of curiosity, the biophysicists dove right in (get it?) to understand the fluid dynamics of how the entry and subsequent motions work together to create enormous splashes. First, they examined videos of Manu dives and collected movement data. On average, Manu jumpers enter the water at about a 45-degree angle, with their butts leading the way and their legs and torsos angled outward in a splash-priming V shape. The diver’s head and feet enter the water last. The entry is followed by a rapid backward roll and leg extension which stretches out the body — and, with it, the pocket of air trapped near the body from the V-bomb — until the gravitational pull of the water overcomes the inertia of the plunging jumper. At that point, the air cavity collapses, pinches off, and shoots a towering jet of spray skyward.
Popping a Manu hurts a little when done well and hurts a lot when it goes wrong, so Manu jumpers will likely be thrilled to hear about the work that’s been done by Saad Bhamla and his team. Using a lot of high tech equipment such as 3-D–printed projectiles, robotic divers, and high-speed cameras, the Georgia Tech researchers performed splash tests to determine the precise angle of entry that is crucial to forming the best air cavity in the plunging jumper’s wake and the perfect timing required to make the biggest splash. The ideal moment depends on the height of the jumper and the height of the jump itself – both affect how big and how deep the cavity forms. The researchers devised lots of equations and used a lot of math, and in simple terms, they found that stretching out too soon releases the air cavity created by the body before it fully develops (and tends to be painful). Too late, and the body expands after the cavity has already started collapsing, resulting in a smaller splash. When the research team’s robot opened up about halfway through its underwater descent, it triggered the biggest vertical plumes. The Bhamla Lab published a 14-page research paper this year titled, Mastering the Manu – how humans create large splashes. If you are looking to make an impression at your next pool party or perhaps add to your summer reading list, you can read about their research on the lab’s website here or read the entire paper here.