CWS Market Review – July 14, 2026

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Inflation Has Its Biggest Drop in Six Years

This morning, the Bureau of Labor Statistics reported that inflation fell by 0.4% last month. I knew it was going to be down, but I was surprised that it was down that much. That’s the biggest drop in over six years. Wall Street had been expecting a drop but only of 0.2%. Over the last year, inflation is running at 3.5%.

The long-term statistics say that stock prices love low and stable prices and hate inflation. In fact, the only thing stocks hate more than inflation is deflation.

Of course, the big drop was due to the decline in energy prices. This is precisely why we look at core inflation which excludes food and energy prices. Food and energy prices can easily get knocked by temporary shortages. For June, core inflation was unchanged while Wall Street had been expecting an increase of 0.2%. Over the last year, core inflation is running at 2.6%.

Here’s a look at the 12-month rolling inflation rate (blue) along with the core rate (red):

It wasn’t just energy that held down inflation last month, but housing costs also played a role. Here are some details from CNBC:

The energy index slumped 5.7% in June, its biggest monthly drop since April 2020, though it still surged 15.7% on an annual basis, pushed by a 26.7% gain for gasoline. However, gasoline and fuel oil both saw decreases of more than 9% in June.

In addition, services costs, which are closely watched by Federal Reserve policymakers for longer-run inflation trends, moderated significantly. Services excluding energy costs were flat, with shelter rising just 0.1% and transportation services posting a 0.3% decline.

Food prices rose 0.2%, while new vehicles were flat and used cars and trucks saw a 0.2% decline. Apparel prices, which are sensitive to both energy and tariff inputs, fell 0.6%.

Where does this leave the Fed? Probably not much of a change. Futures traders still expect a rate hike in September, but the odds dropped a little in today’s trading. Yesterday, the odds of a September hike were at 75%. Now it’s closer to 60%.

Thanks to some hopeful signs for peace in the Middle East, oil prices fell last month. In June, the price for West Texas Crude got as high as $97 per barrel. In July, it’s been as low as $67 per barrel.

This morning, Federal Reserve Chairman Kevin Warsh gave his regular semi-annual testimony before members of Congress. On Tuesday, he went before the House Financial Services Committee. On Wednesday, he’ll go before the Senate Banking Committee.

Warsh is new on the job. The problem is that financial markets love to over analyze any minor clue in the Fed Chairman’s remarks.

In today’s testimony, he sounded very hawkish on inflation. Warsh said that inflation “has been a tax on the American people and businesses. We plan on getting rid of that tax.” That’s nice to hear, but Fed Chairmen have long been known for tough talk and wimpy policies.

Warsh created five task forces to examine how the Fed conducts business. The panels will look at Communications Strategy, Balance Sheet, Economic Data & Alternative Data, Productivity & Jobs and Inflation Framework. Twelve-month inflation has exceeded the Fed’s target for the last 64 months in a row. There’s certainly room for improvement.

IBM Has Worst Day Ever

Today was the unofficial kickoff for the Q2 earnings season. Several of the big banks reported today.

Before I get to the big banks, the big shocker today was IBM (IBM). The stock got pounded for a 25.2% loss. This looks to be IBM’s worst day in its 115-year history, even surpassing Black Monday in 1987.

Here’s a chart of IBM going back to January 1980 (without dividends):

Except for the late-90s, that’s not a very impressive chart.

Big Blue won’t report its earnings until next week, but it said its profits will be below expectations. This is exactly what I’ve talked about before. Profits are up for Corporate America, but expectations are even higher. Nowadays, if you miss, even by just a bit, the traders will be merciless.

According to the WSJ, “IBM said the performance of its software and infrastructure business fell short of expectations in the second quarter, and the company didn’t react quickly enough to the changing market conditions.” The drop erased $68 billion in market value. CEO Arvind Krishna said, “this quarter we faltered.”

The other fallout is that IBM is a Dow component. It’s been in the index continuously since 1979. This is where things get interesting because the Dow is a price-weighted index. This means the Dow is computed by adding up the prices of all 30 stocks and multiplying by six (or 5.9436, to be more precise). That means that all by itself, IBM cost the Dow more than 430 points today. Not including dividends, the stock is up 11% over the last 14 years.

Now let’s look at some of the bank earnings from today. Citigroup (C) appeared to have good numbers. For Q2, Citi earned $3.15 per share which beat estimates of $2.71 per share. In fact, Citi beat all 20 of the estimates Wall Street had for today.

Citigroup has received a lot of attention recently as CEO Jane Fraser has worked to turn around the bank. It seems that her plans are working.

The bank also announced a $30 billion share buyback, plus a 12% dividend increase. Still, the shares fell more than 4% today.

Goldman Sachs (GS) had a very strong quarter. The bank had equities revenue of $7.42 billion. That’s a blowout number. It’s up 72% over last year. Goldman had investment-banking fees of $3.4 billion, and $4.59 billion in rates trading.

The stock closed higher by 9% today. Like IBM, Goldman is also a member of the Dow. With a share price at $1,140, it has the greatest weight of any member of the index. Goldman is currently worth more than 6,800 points in the Dow.

JPMorgan (JPM), yet another Dow stock, reported its highest profit ever. Q2 equities rose 86% to $6.03 billion. Net income was $7.70 per share. Wall Steet had been expecting $5.64 per share. JPM gained 2.5% today.

Bank of America (BAC) saw its profits rise 27% last quarter to $9.1 billion. Earnings per share rose 34% to $1.21 per share. Revenue grew 15% year-over-year to $31.6 billion.

Tomorrow, we’ll get earnings from companies such as BlackRock (BLK), Morgan Stanley (MS) and Bank of New York Mellon (BNY).

On Thursday, Abbott Labs (ABT) will be our first Buy List stock to report for this season. The stock has fallen the last few days but I’m expecting good results. For Q2, Abbott sees earnings coming in between $1.25 and $1.31 per share. For the whole year, Abbott sees earnings between $5.38 and $5.58 per share. I hope to see higher guidance.

That’s all for now. Fed Chairman Kevin Warsh will testify on Wednesday before the Senate Banking Committee. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on July 14th, 2026 at 5:58 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.