MICHAEL J. HALLORAN, CFA | Equity Strategist of Janney Montgomery Scott
Wyncote Wealth Management Group

Highlights for this week include: 

• While July retail sales disappointed, underlying trends remain healthy. Consumer spending power remains solid and suggests retail sales should revert back toward trend growth in August. 

• Industrial production made further gains in July with underlying details showing broad-based strength. Production in high-tech equipment remains a major tailwind due to investment in Al as well as the reshoring of semiconductor production. 

• We are late into the second quarter of earnings season, which continues to show impressive results. For the full year 2026, analysts are now predicting (year-over-year) earnings growth of a positive 32%. While Technology (Al beneficiaries) and Energy are leading earnings growth, earnings growth for the rest of the market has been strong and accelerating. 

• The S&P 500 and other important indexes remain near all-time highs, and we are encouraged by the performance of economically sensitive sectors and asset classes. While acknowledging the risks posed by the fluid and uncertain Iranian conflict, we continue to expect stocks to be supported by further economic growth and robust profits. 

Disappointing July Retail Sales Masks a Still Healthy Underlying Trend 

Consumer spending makes up about two-thirds of U.S. economic activity. Consequently, the monthly retail sales report from the Census Bureau, which provides insight into the health of the U.S. consumer (and consequently the overall economy) is closely watched by market participants. While the July reading came in below expectations at -0.6% m/m, this follows a string of healthy monthly gains of +0.7% in April, +0.9% in May, and +0.2% in June, with sales up 5.0% versus a year ago. 

In addition, Amazon pulled its Prime Day promotion forward into June from July. That’s why June’s non-store (internet) retail sales jumped +0.9% m/m but dropped 2.2% in July (the weakest such reading since Jan 2025). We also note that eight of the thirteen major sales categories rose in July, while declines in the two largest categories – autos and non-store retailers – more than offset rising spending in categories like clothing, health & personal care, and general merchandise stores. Given a healthy labor market and record-high consumer net worth, spending power remains solid and suggests retail sales should revert back toward trend growth in August. 

July Industrial Production Makes Further Gains Led Again by High–Tech Manufacturing 

Industrial production continued to grow in July, posting a 0.2% gain with underlying details showing broad-based strength. All three major categories contributed to the rise, led by a 0.2% increase in manufacturing despite a 2.1% drop in the volatile auto sector, while activity in previous months was revised higher. Production in high-tech equipment, which has been a major tailwind recently due to investment in Al as well as the reshoring of semiconductor production, jumped 1.9% in July. High-tech 

manufacturing is up 11.8% in the past year (the fastest annual rate of any major series) and has risen at a blistering 29.0% annualized rate in the past three months. Business equipment manufacturing rose 0.8% in July and is up 6.6% in the past year, outpacing the 1.1% gain in overall industrial production and signaling a broader reindustrialization. Defense production is now at a cycle high. 

The other two major categories posted solid gains, with mining up 0.2% and utilities up 0.5%. The increase in mining was driven by a substantial jump in drilling activity. Utilities output (which is volatile and largely dependent on weather from month to month) has been on an upward trend since 2023, following nearly twenty years of stagnation, as data centers have boosted demand for U.S. power generation. 

Earnings Season Continues to Impress 

The second quarter (Q2) earnings season continues to show impressive results following a strong first quarter. Over 85% of the S&P 500’s market capitalization has reported so far, and expectations are now for Q2 earnings to grow an impressive 33%. While Technology (Al beneficiaries) and Energy are leading earnings growth, earnings growth for the rest of the market has been strong and accelerating. The median S&P 500 company grew earnings by 14% year/year during Q2. The full-year 2026 S&P 500 earnings growth estimate now stands at a notable 32%, while the 2027 estimate is for a further healthy gain of 12%. 

Remaining Positive on the Market 

The S&P 500 and other important indexes remain near all-time highs, and we are encouraged by the performance of economically sensitive sectors and asset classes. While acknowledging the Iranian conflict continues to pose a risk for the economy and stocks, we remain positive on the stock market. We maintain our expectation for stocks to be supported by further economic growth and robust profits. 

Disclaimer 

This report is provided for informational and educational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities or a recommendation for any strategy or to buy, sell, or hold any product. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed here. The information described herein is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by us. The opinions expressed herein may be given only such weight as opinions warrant. This Firm, its officers, directors, employees, or members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis. This report is the intellectual property of Janney Montgomery Scott LLC (Janney) and may not be reproduced, distributed, or published by any person for any purpose without Janney’s prior written consent. This presentation has been prepared by Janney Investment Strategy Group (ISG) and is to be used for informational purposes only. In no event should it be construed as a solicitation or offer to purchase or sell a security. Past performance is no guarantee of future performance and future returns are not guaranteed. There are risks associated with investing in stocks such as a loss of original capital or a decrease in the value of your investment. For additional information or questions, please consult with your Financial Advisor.

For all the latest news, follow us on Facebook or sign up for Glenside Local’s “Daily Buzz” newsletter here.