U.S. equities pulled back last week, with the S&P 500 declining 1.55%—its first weekly loss in three weeks- while the tech-heavy Nasdaq fell 2.9% as semis and memory stocks were the worst performers. The sharp selloff in tech was marred by concerns over elevated valuations, sustainability of capex and the release of a cheaper Chinese AI model. In addition, institutional investors were heavily crowded into the same top performing tech names that a bout of profit taking cascaded into forced margin liquidations globally. Concurrently, bank earnings showed that the underlying economy is strong (17% corporate loan growth and solid consumer spending), while softer CPI/PPI data dialed back inflation fears. The healthy macro picture gave investors the green light to rotate into lagging sectors like staples and financials, widening market breadth. Renewed U.S.-Iran hostilities and disruptions around the Strait of Hormuz also drove oil prices sharply higher, reigniting concerns around energy prices and economic growth and making energy the top performing sector. This is a busy week for earnings, with all eyes on GOOGL’s commentary around their capex plans.
June CPI Inflation
The CPI number for June came in much lower than expected, as energy prices fell from their peak in reaction to the temporary ceasefire announcement last month. Headline CPI fell 0.4% for the month, bringing the year-over-year number down to 3.5% from 4.2% in May. Energy was the primary driver, with the energy index falling 5.7% after three consecutive monthly increases, including a 9.7% drop in gasoline prices. Core CPI came in below estimates as well, with core prices roughly unchanged in June which brings the year-over-year rate down to 2.6% from 2.9%. Shelter increased just 0.1%, the smallest monthly advance since January 2021, suggesting that the long-awaited resumption in housing disinflation may be beginning. Supercore inflation, which is core ex shelter, fell 0.2%, a large drop by historical standards.
As the US-Iran war tensions have been reignited, the inflation outlook remains vulnerable to renewed energy-price volatility. Oil prices declined in June as peace talks and the temporary ceasefire reduced concerns about supply disruptions, but prices have jumped again (though nowhere near recent highs) following renewed strikes. Given this, the energy price relief we saw in June may be temporary. The energy supply instability that the war continues to pose could cause further one-time increases in headline inflation, making the inflation path bumpy for the rest of the year.
Retail Sales - June
The headline retail sales figure for June came in at +0.20% on a Month-over-Month (MoM) basis, just slightly below expectations of +0.25%. The main reason for the miss was a decline in gas prices in June, as average national gas prices dove by $0.50 per gallon, thereby allowing households some breathing room to increase spending in other categories beyond the pump. The underlying strength in consumer spending was evident in retail sales ex auto and gas, which came in at +0.43% MoM, and in areas such as clothing, sporting goods/hobby stores, personal care, and nonstore retailers, which performed strongly on the month. Overall, the consumer appears to remain rather resilient amid the elevated geopolitical risk, as shown by the previous six months of retail sales ex-gas remaining positive, and with gas prices now easing, it is likely to disproportionately benefit lower-income households, which have a higher fuel burden than higher-income households. However, looking ahead, that underlying strength could continue to be tested, especially for higher-income households that have benefited from the wealth effect of the recent market rally, as any signs of weakness in AI earnings could increase index volatility, thereby potentially denting the wealth effect. Meanwhile, for lower-income households, a potential restart of the Iran war could reintroduce some of those fuel pressures and erode any real wage gains they have seen previously. In general, though, the consumer thus far appears to remain both resilient and consistent in their consumption patterns, but in the short term, geopolitical and market volatility risk could increasingly influence consumer behavior.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
