Stocks end week lower with 24% earnings growth in focus

U.S. equities ended the week lower, with volatility easing into Friday after a session shaped by currency swings, commodity moves and shifting rate expectations.

"Our work continues to suggest that current GDP growth underestimates the strength of the private sector even as inflation-adjusted income has weakened," Shelton Capital Management said in its July commentary, noting the firm maintains an overweight to U.S. equities.

The week's decline unfolded against a backdrop of dollar strength, with the yen touching a 40-year low of 163.99 per dollar, according to GuruFocus data. Natural gas futures edged up 0.3% to $2.93 per million British thermal units after weekly storage rose 32 billion cubic feet to 3.056 trillion, exceeding the 29 Bcf consensus. Corporate earnings remained a bright spot, with S&P 500 earnings growth tracking above 24% for 2026 and estimates being revised up rather than down, per FactSet data cited by Shelton Capital.

The crosscurrents leave the Federal Reserve with room to hold rates steady. Inflation likely peaked in May, led by fading energy costs and cooling shelter costs that eased to their slowest pace since before the pandemic, Shelton said. With the next Fed meeting on the horizon, the path for equities hinges on whether earnings momentum can outweigh the drag from a strong dollar and elevated borrowing costs.

The week's price action reflected a market caught between competing narratives. On one side, a resilient corporate earnings season provided fundamental support. On the other, a strengthening dollar and rising bond yields pressured equities, particularly rate-sensitive sectors.

The dollar's rally, driven by expectations that the Fed will hold rates higher for longer, has been a headwind for multinational companies with overseas revenue exposure. The yen's slide past 164 toward the 165 level raised the prospect of intervention by Japanese officials, adding another layer of uncertainty for currency markets.

Treasury yields moved higher during the week as traders priced out near-term rate cuts. The U.S. 10-year yield's trajectory remained a key driver of equity valuations, with growth stocks particularly sensitive to moves in long-duration rates.

The labor market added to the complexity. Job creation reaccelerated in the past quarter, defying expectations of a slowdown, though the scarcity of available workers rather than business caution is likely to cool hiring ahead, Shelton said. The broader unemployment rate, measured across all Americans aged 16 or older, sits near an all-time low, suggesting limited slack in the labor force.

This article is for informational purposes only and does not constitute investment advice.