You get a lot of financials, johnson & johnson, a lot of names next week.
Is that what will be setting the tone for the market for the next few weeks?
I think couple of things, and i mean, earnings are a big thing.
I would focus on topline growth.
Estimates were about 2.5%. the of the thing to focus on, as you pointed out, this was a week without much economic data.
That starts to change next week.
Also, cbi and ppi.
Investors will start to spend more time watching the inflation numbers after the strong market reports.
Jim, i want to pick up on that inflation theme in particular.
We are sorting to see inflation rise to some extent, with the exception of wages.
That seems to be that missing slice that is not rising as much as the rest.
You got, perhaps some warning signs on the consumer side particularly, when you talk about retail sales coming out next week.
Gap is disappointing.
The container store citing a retail funk, as it said.
When is that piece of the puzzle going to come around?
I think it is better than you think and there is evidence of wages going up.
If you look at average hourly earnings or wages for nonsupervisory workers, that is 80% of the wage earners in this country.
They have accelerated from 1.3% to 2.3% over the last 20 months.
If you look at the small business survey of compensation trends, it is that one of the highest levels, i think, in over six years, and heading straight higher.
We have created 1.4 million new jobs in the first half of this year, 230,000 a month on average for five straight months in payroll gains.
This is some of the best job information we've had in the entire recovery.
I don't think there is that much evidence to me of weakness in the consumer sector.
What about all of these individual retailers?
And what about sentiment?
Why aren't these surveys better?
Most confidence measures, with you look at the university of michigan confidence board -- or the confidence board, a are pretty close to the higher levels of the recovery, and back to levels that we have not since -- have not seen since 2008. the consumer discretionary stocks have been doing very poorly of late.
But you have to member that the best-performing sector of the last five years without exception has been the consumer discretionary stocks.
They were often outperforming when a consumer on main street was doing very poorly.
I think there is not necessarily a direct connection between how stocks are doing now and how consumers are doing now.
Russ, i want to bring you back to the conversation.
You believe that economics are revving up.
What metric confirms that to you?
Is consumer discretionary something we should be thinking about?
Things like the isn new orders, looking at initial unemployment gain -- claims, most of them are pointing in the right direction.
We also picked up on loan growth.
I believe the contraction in the force quarter was an anomaly.
We should see much better growth in the back half of the year.
That said, on a bit cautious on the consumer.
I agree with jim and think that wage growth is accelerating, but i don't think we're going back to long-term trend of the structural headwinds.
As jim points out, the consumer stocks have been outperforming for a very long time.
They're relatively expensive compared to the broader market.
I'm a bit concerned that even if the wages due rise of it, that too much good news could be in that sector.
I would like cyclical stocks and capital spending rather than consumer spending.
I don't disagree with many parts of that.
I think the primary problem the market will have for the rest of the year is in the first part of this year, good news on main street has been good news for wall street.
I think we are in the point where we are changing that mindset now, where good news is going to start being bad news for wall street.
Because the mindset is getting more concerned of inflation, whether the fed will move up its exit strategy, whether bond yields will move higher.
I think that is going to give the stock market a bigger challenge.
My approach to the second half is somewhat in agreement with russ.
I still like the technology stocks for their capital spending relationship.
I think the capital spending is finally starting to increase in this cycle.
But i would also add material stocks because of inflation fears.
I think they will do well in the second half.
And i would add defensive sectors as well.
I would barbell my exposure in the second half.
I would be looking at staples and utilities on the other side of that equation.
I was surprised to see utilities in your notes as a pick.
That is because as inflation heats up, utilities is one of those groups that everybody has been buying because of that yields, but if rates go up, they tend to suffer, right?
That is right.
I tend to -- i totally agree with that.
But i have also noted, if you look back to 1990 in the sector relative performance, once utilities have a fairly hefty correction, and they have in the last 18-24 months.
They have underperformed quite a bit, particularly as the bond yields moved up from 1.5% to three percent last year.
Once the rates go up, they can generally do ok.
Between 2003-07, long-range utilities outperformed also in that timeframe.
It is a situation where the value has returned to utilities, and even if bond yields go up to some degree, i still think the overall returns will be good for these current levels.
Russ, you have financials reporting results next week, the big players -- jpmorgan, goldman sachs, citigroup.
What is your advice to then?
I agree with jim on the notion that we would like some cyclical exposure, technology, and energy.
And i think financials make sense as well.
The key is not to overpay.
The reason i say that is there's still a lot of uncertainty about the profitability of the banking your and how the new rules will affect the are we.
You want to be able to buy at a discount.
Given that profit ability will not be a high over the next five years as it was pre-crisis.
What earnings will you be watching out for next week?
What i am most concerned about, i think it will be viewed through the windshield.
As russ said, with the inflation report, how much more of a sense we get that the economy is growing north of three percent than last quarter.
I want to see some topline.
I want to see better topline from companies.
And secondly, i want to see ceo 's showing confidence in the future of this recovery for the rest of the year.
If they have more confidence in their forecast, that tells me capital spending is, indeed here.
Would actually want to hear from the executives.
Thank you so much for walking us
This text has been automatically generated. It may not be 100% accurate.