By Lewis Krauskopf
NEW YORK, July 10 (Reuters) - An eventful coming week of economic data, corporate earnings reports and Middle East developments will test a resilient U.S. stock market that has indexes around record highs despite turbulence beneath the surface.
The S&P 500 was on course for a second straight weekly gain as of Thursday, putting the benchmark index up 10% for the year and about 1% from its record close from early June. The weekly strength overcame big swings in market-leading semiconductor
shares and a flare-up in tensions between the U.S. and Iran that put risks tied to the four-month-old war and related energy price spikes back at the forefront for investors.
Major banks next week kick off a second-quarter earnings season for U.S. companies that is expected to be strong. Several key economic reports are due, led by the U.S. consumer price index, an inflation gauge that could recalibrate market expectations for interest rates.
"You've got a number of crosscurrents from geopolitical headlines, the start of earnings season, some CPI data on the horizon and some skepticism around the AI trade," said Michael Reynolds, vice president of investment strategy at Glenmede. "It just seems like a lot of factors coming to a head all at once."
OIL, IRAN BACK ON MARKET'S RADAR
Investors' belief in a relatively short-lived Middle East conflict, combined with a blowout first-quarter earnings season, helped boost stocks over the past few months.
Oil prices jumped this week amid concerns over the impact of the renewed attacks on shipping and global supplies. Brent crude was last around $76 a barrel, far from the $100 level reached earlier this year that is seen as more worrisome for markets broadly. Still, investors said they would be attuned to developments in Iran, including the fallout for shipping and any expansion of the war in the region.
"It's a very difficult environment to make strategic investment calls when the situation ... in Iran is so fluid," said King Lip, chief strategist at BakerAvenue Wealth Management in San Francisco.
The pullback in oil prices in recent weeks could mitigate the need for global central banks to raise interest rates to control inflation.
For the U.S. Federal Reserve, "what happens to the price of oil may determine the level of the urgency of the next rate hike — i.e., whether it comes in September or October," Macquarie strategists said in a note on Thursday.
INVESTORS SEEK RATE-PATH SIGNS FROM INFLATION DATA
The CPI report for June, due on Tuesday, also could ratchet up pressure on the Fed to act to control inflation. The core measure of CPI, which strips out energy prices, will be in focus, including the extent to which this year's rise in oil prices may be filtering through to inflation more broadly, investors said.
"If we get hotter inflation or we see signs that inflation will remain elevated for the next few months, it could push odds of a rate increase higher by year end," said Anthony Saglimbene, chief market strategist at Ameriprise.
Another inflation gauge, the producer price index, comes a day after the CPI report. Monthly retail sales on Thursday will provide a view into the strength of consumer spending.
Higher interest rates can pressure equities by raising borrowing costs for consumers and companies.
Investors' bets on impending rate hikes rose following a surprisingly hawkish Fed meeting last month, the first under new Chair Kevin Warsh. Minutes of that meeting released this week showed policymakers' mounting concerns about inflation.
Warsh himself is expected to deliver his first testimony on monetary policy before Congress next week.
BANKS BEGIN Q2 REPORTING SEASON
JPMorgan Chase and Goldman Sachs are among the major banks reporting on Tuesday, setting the tone for a quarterly reporting season expected to show exceptional overall U.S. profit growth.
The bank reports could provide insight into consumer strength, through credit card products, and into broader credit trends.
"If you're seeing healthy earnings and outlooks coming from the big banks next week, it's a sign that the overall economy, the overall environment for businesses and consumers held up relatively well in the second quarter," Saglimbene said.
Reports are also due next week from such high-profile companies as Netflix, BlackRock and Johnson & Johnson.
S&P 500 earnings are expected to jump 23.4% in the second quarter from a year ago, according to LSEG IBES.
"We're in store for a really strong quarter," said Glenmede strategist Reynolds. "A lot of these companies are going to have to put up some good numbers to really justify those expectations."
(Reporting by Lewis Krauskopf in New York; Editing by Colin Barr and Matthew Lewis)
