How have my wife Carole and I remained married for more than 31 years? It’s because I’m the Neville Chamberlain of husbands. You want Czechoslovakia? Take it.

Consider retail shopping. I hate shopping. My wife loves it. She buys stuff we don’t need. I say nothing.

Carole is simply performing her patriotic duty. Millions of people like her are the growth engine of the U.S. economy. About 70% of the nation’s gross domestic product is consumer spending. Shopping is the Great American Pastime. And despite inflation, war and plague, the shopper has come to the rescue…again.

The U.S. Department of Commerce reported Friday that retail sales in June climbed by more than expected in a broad-based advance, indicating resilient consumer spending despite a bevy of risks and headwinds.

U.S. retail sales jumped 1% month-over-month in June, surpassing forecasts of an 0.9% gain, and bouncing back from a downwardly revised 0.1% drop in May (see chart).

Retail sales rose by 8.4% year-over-year. Excluding automobiles, gasoline, building materials and food services, so-called core retail sales climbed 0.8% month-over-month in June, after an 0.3% decline in May.

Keep in mind, these retail sales figures aren’t adjusted for inflation. Consumer spending remains elevated, but retail sales growth was slower than inflation last month. That said, the unexpected strength of consumer spending cheered Wall Street.

After the opening bell Friday, the major U.S. stock market indices were trading sharply higher, snapping a five-day losing streak. The major averages are still on track for a losing week, but investors savored the positive retail news.

The strong start to trading on Friday is in contrast to Thursday’s session, when the U.S. stock indices closed mixed in choppy trading.

The big banks disappoint…

Second-quarter corporate earnings season is underway and results from the banking sector so far are weaker-than-expected. The financial services sector is considered an economic bellwether, so the Q2 profit misses of stalwarts such as JPMorgan Chase (NYSE: JPM), Morgan Stanley (NYSE: MS), and Wells Fargo (NYSE: WFC) don’t bode well for economic growth.

Meanwhile, the U.S. dollar continues to gain strength, with the DXY dollar index hovering at a fresh high for the year at roughly $109. During the broad-based stock market slump so far this year, the greenback has been one of the few assets that has posted positive returns, as nervous investors flee to safety amid Federal Reserve rate hikes.

When interest rates rise, it tends to make the U.S. dollar stronger. The higher yields attract investment capital from investors abroad seeking higher returns on bonds and interest-rate products.

An orderly egress…

The stock market has been in a downward trend, but the sell-off has been measured, without panic-induced crashes. As of this writing Friday, the CBOE Volatility Index (VIX), aka the “fear index,” hovers at 26. VIX readings greater than 30 generally indicate uncertainty and fear; readings below 20 reflect stability and calm.

For historical perspective, on March 18, 2020, during the trough of the COVID-caused crash, the VIX hit a record closing high of 82.69. On October 24, 2008, during the rock bottom of the great financial crisis, the VIX hit an intraday high of 89.53, a record that has yet to be surpassed.

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This week, the consumer price and producer price indices for June came in hotter than expected, but these gauges are backward looking.

The prices of key commodities tumbled in the second quarter of 2022, amid economic deceleration and Fed tightening (see chart).

Commodities prices are continuing their downward momentum in July, a trend that should eventually show up in inflation readings in the months ahead. Falling commodities prices should also boost corporate profit margins in future quarters, as input costs decline.

Regardless, the latest inflation numbers this week have increased pressure on the Fed to become even more hawkish. In June, the Fed hiked the Overnight Federal Funds Rate by 75 basis points (bps), bringing the rate up to 1.57%, its highest level since the breakout of the pandemic in March 2020.

There’s now talk that the next rate hike could be as high as 100 bps, which would be a full percentage point. After the Fed makes its announcement next week, we’ll see if the American consumer, and by extension investors, continue to hang tough.

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John Persinos is the editorial director of Investing Daily.

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