Last week investors got more economic data that suggested the Fed may be comfortable keeping rates on hold in September. In the middle of the week, the market got good news on the inflation front – with signs that the disinflation trend is resuming. Core CPI increased 0.2% for the month, in line with expectations and bringing the year-over-year rate a tick down to 2.5%. Additionally, Core PPI came in softer than expected and the year-over-year rate dropped to 4.2% from 4.7%. On the consumer side, retail sales for July came in lower than anticipated. This batch of softer economic data brought rate hike probabilities for September down to 33% from 50% at the beginning of the week. For the market, earnings continue to do the heavy lifting despite pressure from higher rates. The S&P 500 started the year at 22x forward earnings and is now closer to 20x, yet the index is still up 13.7% YTD. In other words, earnings growth has been the driver of the market as multiples have compressed. From here, if we start to see rates decline that would provide some support to valuations, but what drives rates is the bigger question. If inflation continues to improve while growth and earnings remain intact, that is close to the best-case scenario for equities. If rates fall because growth is weakening, lower yields may help multiples, but they will only partially offset the likely pressure on earnings. Given the weak retail sales data that we got on Friday, investors will be closely watching the major retailer earnings when they report this week – with TGT, WMT, TJX, and HD among others reporting.
Inflation
July CPI came in softer than expected, giving the Fed more flexibility heading into September. Core CPI rose 0.2% for the month and slowed to 2.5% year-over-year, its lowest level since March 2021, while headline CPI increased just 0.1% and remained at 3.4%. Energy was the biggest driver of the softer print, falling 1.5% as the Iran-related spike continued to unwind, while grocery prices declined for the first time since March. The underlying data was a little more mixed. Shelter rose just 0.1%, although some of that weakness came from lodging as the World Cup boost continued to reverse, while rents remained sticky. Goods inflation stayed relatively contained, suggesting most of the tariff pass-through may be behind us, though certain categories such as computers continue to see pressure from AI-related demand. Overall, inflation continues to move in the right direction. Headline CPI remains elevated, but with core inflation easing, the energy shock fading, and the labor market softening, the Fed has more room to remain on hold in September.
July Retail Sales
Retail sales came in notably weaker than expected in July, suggesting consumer spending is beginning to cool after a strong first half of the year. Headline retails sales fell 0.6% month-over-month, the largest decline since May 2025, while core retail sales (ex-autos, gasoline, and building materials) fell 0.4%. Weak areas in the report were relatively broad, led by declines in online sales, autos, and electronics, although spending at clothing stores, health and personal care retailers, and restaurants remained positive. July’s weak report was partly due to a change in the Amazon Prime Day date, which occurred in late June this year versus July last year, which one can see being reflected via the 2.2% decline in non-store retailers. Nevertheless, the softness supports our view that consumer spending growth will moderate in the second half of 2026 as the boost from tax refunds fades and households continue to navigate elevated prices and energy-price headwinds. This week investors will get more information on the state of the consumer with many of the major retailers such as TGT, TJX, WMT, and HD reporting earnings.
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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.
