Three Weeks Up, and a Consumer Wobble

It was a week that ran on good-news-is-good-news right up until it wasn't. Tame inflation on Wednesday and a record close on Thursday carried the S&P 500 to its third consecutive weekly gain. But Friday delivered a jolt of the other kind of soft data — shoppers pulling back and confidence sinking — and the index slipped 0.2% to 7,785.76, easing off Thursday's all-time high of 7,798.99.

For the week the S&P rose 0.4% and the Nasdaq eked out a 0.1% gain — the third straight weekly advance for both — while the Dow slipped 0.6% and the Russell 2000 outperformed with a 1.1% rise, extending its run as the year's quiet leader.

How the week traded

Stocks drifted lower Monday and Tuesday as traders waited on inflation, then found their footing midweek.

The consumer flashes yellow

Friday's data was the week's real message. Retail sales fell 0.6% in July, a sharp miss against expectations for a slight gain, and the University of Michigan's sentiment index dropped to 51.0 from 55.2, with year-ahead inflation expectations climbing to 4.3%. Only 8% of consumers now expect their income to outpace inflation over the next year. Soft spending can keep rates low — which Wall Street likes — but it also raises the risk of a genuine growth slowdown while inflation is still above target.

The same softness that keeps the Fed patient is the softness that should make investors nervous. This week we got both readings at once.The Friday Recap

One bright spot for the beaten-down software group: reports of a large buyout of Workday stirred hope that the AI overhang on enterprise software — the fear that AI erodes seat-based subscriptions — may be overdone for companies with real scale.