Grab the beach towel and bucket and spade -- Wall Street looks to be on vacation with stock markets at their calmest levels of the year. That tranquility could last all the way through to September even amid continued debate over interest rates and saber-rattling between the U.S. and Iran.
The market's "fear gauge" isn't exactly living up to its nickname recently. The Cboe Volatility Index, or VIX, hit its lowest levels since December on Friday. And while part of the reason is seasonal -- the gauge tends to hit a low in July -- the calm looks set to be extended. End-of-year price targets for the S&P 500 indicate minimal movement in the months ahead.
A big part of the reason for such a Zen state is an incredibly strong earnings season. Second-quarter earnings for S&P 500 companies are on track to grow by an average 50%, according to FactSet. Even after stripping out huge paper gains on private investments, the average earnings growth comes to 31%, a more-than healthy rate.
Another potential risk has also faded in recent weeks, as markets scale back their bets on an interest-rate hike from the Federal Reserve. Benign inflation readings left investors calmer about the central bank's no-guidance policy under Chairman Kevin Warsh. Economists at Goldman Sachs think even the roughly 30% chance of a September rate hike that markets are pricing in is too high after two months of "materially softer" jobs and inflation data.
So is there anything that could disrupt the quiet? The expiry of the 60-day cease-fire between Iran and the U.S. on Monday and the release of Fed minutes on Wednesday have the potential to introduce some volatility this week, along with Wednesday's deadline for the introduction of American tariffs on Canadian goods. But those are all relatively familiar concerns the market has overcome before.
It would still be a brave trader who extends their break until the fall, but it could be a sleepy end to summer ahead.
-- Adam Clark
Barron's Live: Join Barron's Live today at noon for a look under the hood of the bull market in U.S. stocks and what's ahead. Associate Editor Reshma Kapadia speaks with Savita Subramanian, Bank of America's head of U.S. equity and quantitative strategy, about whether the AI-trade is losing momentum, why index funds aren't offering much diversification and what an industrial revolution means for market multiples. Sign up here.
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Wall Street Still Isn't Budging on S&P 500 Price Targets
Stocks are flying high right now thanks to strong earnings growth and fading bets on a Federal Reserve interest-rate hike. But the market's most-watched analysts are still forecasting meager gains for the benchmark S&P 500 over the coming months.
-- With less than a tenth of the S&P 500 still set to report, collective
second-quarter earnings are set to rise more than 31% from last year to
around $740 billion, according to LSEG data. That would lock in the
strongest first-half tally since 2021.
-- End-of-year price targets for the benchmark, however, remain muted. The
average forecast is somewhere in the region of 7,900 points, a level that
suggests a mere 1.5% gain over the next three-and-a-half months.
-- The so-called Magnificent Seven are part of the problem. The group of
megacap tech stocks has gained just 4% so far this year, while the S&P
500 is up around 14% and an equal-weighted version of the index has
gained about 16%.
-- So, Wall Street's price target caution could be linked to worries that
tech gains have already been booked. Even a broadening of earnings growth
and stock performance won't be strong enough to power the market higher
over the back half of the year.
What's Next: Earnings growth in 2027 may be notably slower, with projections of around 13.6%, according to LSEG data. That slowdown would come as the market approaches the fourth year of the massive AI-led rally that kicked off in October 2022.
-- Martin Baccardax and George Glover
Retail Earnings Roll Out This Week. The Consumer Is in Focus.
The recent relative market calm could continue this week. There aren't many tier-one economic data releases expected, with the Federal Reserve's meeting minutes being a notable exception. Twelve S&P 500 companies report quarterly results this week, with retailers -- and the state of the consumer -- taking center stage.
-- So far, second-quarter earnings have been among the strongest on record,
but it's driven by big tech, with retailers and travel-related companies
remaining in the shadows. Seaport Research analysts see the collective
EPS for S&P 500 companies jumping 53.1% for the second quarter because of
tech.
-- A week ago, analysts at Bank of America said consumer-oriented companies
such as retailers have trailed others, with median EPS growth of 7% in
the consumer-discretionary sector and 9% in consumer staples, two of the
three weakest sectors, MarketWatch reported.
-- Target and Walmart are two of the highest profile retailers reporting
this week, ready to reveal not only the strength of back-to-school sales
season but also providing an early glimpse into the financial health of
households heading into the crucial holiday shopping season, which isn't
far away.
-- In May, as the Iran war was pushing gasoline above $4.50 a gallon,
Walmart CFO John David Rainey said shoppers were putting less gas in
their tanks -- with the average fill-up falling below 10 gallons for the
first time since 2022. Gasoline prices are now lower, around $4.06 a
gallon.
What's Next: Walmart is expected to report earnings of 74 cents a share and revenue of nearly $187 billion, which would be more than 5% higher than a year ago, but same-store sales are expected to rise 3.8% versus the 4.6% gain in the July quarter 2025, according to FactSet.
-- Liz Moyer
More Tariffs Are Coming, and They Could Look Different
The Trump administration's newest tariffs on drones and a report outlining efforts to curb China's tariff evasion practices offer a glimpse of the next phase of President Donald Trump's trade agenda: more targeted tariffs, tougher rules governing where products are made, and greater scrutiny of efforts to evade duties.
-- The U.S. has imposed tariffs ranging from 25% to 100% on drones, using
Section 232 of the Trade Expansion Act. Countries that struck trade pacts
capping sectoral tariffs -- including the European Union, Japan, South
Korea, and Switzerland -- face 15% levies. The duties are set to take
effect Sept. 3.
-- Companies that commit to manufacturing in the U.S. could qualify for
lower tariffs. The tariffs, aimed at addressing China's dominance in
drone production, also leave room for further negotiations before they
take effect. U.S. drone makers include Ondas and AeroVironment.
-- Rules of origin, which decide where a product was made for tariff
purposes, are another administration priority. For drones from the
European Union, Japan, or Korea to get the preferential rate, major
components have to come from the U.S. or another place eligible for
preferential treatment.
-- Rules of origin are a major issue in continuing negotiations over the
U.S.-Mexico-Canada trade pact and could provide a template for other
relationships. Wide differences in U.S. tariff rates across countries
create greater incentives for transshipment, where a country exports
through another country first to avoid tariffs.
What's Next: More sectoral tariffs, including on copper, still loom. Henrietta Treyz, head of economic policy research at Veda Partners, is on "high alert" for the end of a Section 301 investigation into excess capacity that could eventually result in tariffs on China and more than a dozen countries.
-- Reshma Kapadia
Elon Musk's SpaceX Holdings Revealed. (Hint: It's a Lot.)
Megarich CEO Elon Musk dominates the list of investing and corporate heavy hitters who own shares of SpaceX, with nearly half of the commercial space company's outstanding stock under his control. For the first time, public funds have disclosed their SpaceX positions, and Musk sits alongside Nvidia, Alphabet, and others.
-- Among corporate holders, Alphabet has a 551 million-share stake with a
value of about $77 billion. That is down from its disclosed value of
about $94 billion. But SpaceX stock has been falling, from $171 a share
at the end of the second quarter to $140 on Friday.
-- Meanwhile, Nvidia is also a major holder. It owns a 123 million-share
stake, or just under 1% of the stock outstanding. That's strategic as
Nvidia sells a lot of GPUs to SpaceX, which merged with Musk's AI company,
xAI, in February.
-- Fidelity, BlackRock, and Baillie Gifford are among the notable
institutional shareholders with SpaceX stock. The Ontario Teachers'
Pension Plan is another large holder. Those four hold a combined 455
million-plus shares.
-- Musk controls 6.4 billion shares, or 48.4% of the stock outstanding. That
was valued at about $1 trillion at the end of the second quarter but is
down to a mere $900 billion at the end of the week. Along with his Tesla
stock, Musk's net worth is about $1.1 trillion.
What's Next: Musk's trillionaire status sticks with SpaceX stock above roughly $120 (assuming stable Tesla stock). SpaceX stock weakened on concerns about selling when the IPO lockup ends. Another 319 million shares unlock this week. By year-end, some 4.2 billion shares will unlock. Musk can sell shares in June 2027.
-- Al Root
Sony Marks Its Top-Selling Movie in Hollywood's Sizzling Summer
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