US retail sales put the S&P 500 record to the test

US retail sales for July hit the tape at 8:30 am ET, closing out a week Wall Street spent climbing. The S&P 500 finished Thursday at a record 7,798.99, its 27th record close of the year, per Yahoo Finance. Two soft inflation prints later, the question is whether the American shopper is still holding up.

What US retail sales tell the Fed

Economists look for +0.1% on the month for the headline and +0.2% excluding autos, according to the Investing.com calendar. The print carries weight because household spending drives roughly 70% of US GDP.

A soft number would confirm the economy is cooling on its own, which takes ammunition away from the Fed officials pushing for a hike. A strong number does the opposite. It would show demand holding up with inflation still at 3.4%, and it would hand the hawks their argument back. Indexes walk into this print at all time highs, so there is not much room for a miss.

Two inflation prints already cleared the path

The producer price index was unchanged in July against a +0.2% consensus, according to the BLS. Year over year it eased to 4.7% from 5.5% in June. Wednesday's CPI set it up with +0.1% on the month and 3.4% on the year. The odds of a September rate hike duly slid to 34.8% from 55% a week earlier, per CME FedWatch data cited by Yahoo Finance.

Not everyone is sold. Cleveland Fed president Beth Hammack was one of three dissenters in late July, when the committee held its policy rate at 3.50% to 3.75% by a 9 to 3 vote. She argues that "one 25 basis point move probably doesn't do a whole lot for the economy," Yahoo Finance reports. Read that as several hikes, not one.

The rally is real, the breadth less so

The Nasdaq Composite gained 0.81% on Thursday to 26,803.03 while the Dow managed only 0.13%, at 53,839.99. Chips explain the gap. SanDisk jumped 13.7% and Micron 4.2%, while Cisco fell almost 9% and dragged on the Dow, as the Motley Fool details.

The VIX slipped to 14.64 and CNN's Fear & Greed Index reads 66, firmly in greed. Nobody is paying up for protection ahead of the data, which makes an ugly surprise hit harder than it should.

Gold, the dollar and oil want the same answer

Gold touched a two month high above $4,380 on Thursday before sliding back under $4,350 as buyers took profits ahead of retail sales. The dollar is steady, the euro holds in the low 1.1500s and dollar-yen sits near 159.50, FXStreet notes. Crude keeps sliding, with WTI near $81 and Brent around $87.66. All three are trading the same question as the indexes. Can the Fed stay put into September.

Key levels today

The technical markers below come from Tiomarkets on the S&P 500 and FXStreet on gold.

Economic calendar

• 5:00 am ET, euro area Q2 GDP, second estimate. A downward revision would weigh on the euro and give the dollar a lift before the US open.
• 8:30 am ET, July US retail sales, seen at +0.1%. Above +0.3%, short rates climb and indexes can stall under their record. Below zero, the case for a Fed on hold strengthens and tech keeps its bid.
• 10:00 am ET, University of Michigan consumer sentiment, preliminary. Another drop would widen the gap between anxious households and record index levels.
• 2:30 pm ET, CFTC speculative positioning. It shows whether managers actually bought risk this week or simply trimmed hedges.

The bottom line

Wall Street meets the last data point of the week with a record behind it and a rate hike threat fading. Retail sales decide whether that relief survives until the Fed meets on September 16.

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This is not investment advice.