John Hancock: Weekly Market Recap Week Ended July 26

Stable inflation

The U.S. Federal Reserve’s preferred inflation gauge was unchanged from the previous month and remained modestly above the Fed’s long-term inflation target of around 2.0%. Excluding energy and food prices, the core Personal Consumption Expenditures Index rose at an annual rate of 2.6% in June—the same as May’s figure and matching the slowest price growth in more than three years. On a month-to-month basis, core inflation rose 0.2% in June.

Market rotation

A performance shift within the U.S. equity market extended into a third week, with large caps trailing the previously lagging small-cap segment and growth equities underperforming the value style. Over the past three weeks, a large-cap benchmark fell a cumulative 1.5% while a small-cap index jumped 11.5%. On the equity style side, a growth index fell 6.6% over three weeks while its value counterpart was up 4.6%.

Top-heavy earnings

Near the midpoint of earnings season, just four U.S. mega-cap technology stocks are expected to generate an unusually big share of overall second-quarter earnings growth. Including those four stocks, companies in the S&P 500 were expected to report average earnings growth of 9.8% as of Friday. Excluding those big tech firms, the index’s projected growth rate was just 5.7%, according to a July 22 report from FactSet.

Busy week ahead

In addition to more quarterly earnings reports, the new week will bring a U.S. Federal Reserve policy meeting that concludes on Wednesday and a jobs report on Friday. The Fed is widely expected to keep interest rates unchanged; the jobs report will show how July’s jobs growth compared with June’s bigger-than-expected gain of 206,000 jobs.