The U.S. dollar slipped 0.2% on Monday against a basket of major peers, extending a three-day losing streak to hover near levels last seen in May, after a run of weaker-than-expected economic data reduced investor bets on a September rate hike. A Bloomberg gauge of the dollar tracked the move lower as emerging-market currencies rallied, with MSCI's EM currency index on course for an all-time high close and the Bloomberg Asia Dollar Index climbing to its strongest since May.
The data recalibration has been swift. July retail sales fell a surprise 0.6% month-over-month u2014 analysts had expected a 0.2% gain u2014 while the July jobs report also disappointed. Core consumer prices rose 0.2% month-over-month and 2.5% year-over-year in July, their slowest annual pace since March 2021. The combination pushed the market-implied probability of a September Fed rate hike down from 44% to 32%.
Despite the data softness, markets have not fully cleared a hike from the table. The Energy Information Administration raised its 2026 retail gasoline price forecast by 3.7% and diesel by 5.4% in its latest short-term energy outlook, a reminder that energy-driven inflation pressures persist, particularly given ongoing Middle East conflict tensions. The two-year Treasury yield ended the prior week at 4.17%, down three basis points, while the 10-year benchmark was recently at 4.66%.
The week's first domestic data u2014 the Empire State Manufacturing Index and the NAHB Housing Market Index u2014 are due Monday morning and will be closely watched for further clues on economic momentum. The week's real stress test comes Thursday when Walmart reports second-quarter results, with consensus calling for EPS of $0.74 and revenue of roughly $186 billion. The broader question for markets is whether the consumer-spending softness already visible in July retail figures will be confirmed by the nation's largest retailer.
Monday's domestic economic calendar features the New York Fed's Empire State Manufacturing Index for August u2014 consensus estimate 10.2 versus a prior reading of 15.6 u2014 and the NAHB/Wells Fargo Housing Market Index, where analysts expected a reading around 35. Both releases follow a week of softer-than-expected data and will inform whether the manufacturing and housing sectors are losing momentum alongside the consumer. Builder confidence has been in contractionary territory for more than two consecutive years, weighed down by elevated mortgage rates, high land costs, and economic uncertainty tied to energy prices.
The S&P 500 has registered multiple record closes in recent weeks despite a sleepy summer stretch, and the Russell 2000 small-cap index touched all-time highs three times last week in what strategists describe as a broadening of the bull market. The VIX fell to new 2026 lows below 14.52, reflecting low near-term hedging demand, but analysts at Charles Schwab noted the Fed's upcoming Jackson Hole conference on August 27u201329 could quickly change that. With 87% of S&P 500 reporters beating EPS estimates and tech-sector earnings on track for roughly 50% year-over-year growth, aggregate fundamentals remain supportive even as the consumer picture clouds.
The final major leg of Q2 earnings season arrives this week with Home Depot on Tuesday, Target on Wednesday, and Walmart on Thursday. Walmart's Q2 report u2014 with consensus EPS at $0.74 and revenue near $186 billion u2014 is the marquee event. All three big-box chains face the same headwinds: fuel costs roughly $1 per gallon above pre-Iran-conflict levels adding both to consumers' financial strain and to retailers' own supply-chain expenses. Walmart shares have lost momentum in 2026 despite strong fundamentals, trading at a rich 37.6x forward earnings, and investor sensitivity to any guidance shortfall is high.
Friday's Commerce Department report showed July retail sales fell 0.6% month-over-month, well below the 0.2% consensus gain, partly reflecting lower gas prices and declining auto sales but broadly consistent with a consumer feeling squeezed. The University of Michigan's preliminary August consumer sentiment reading fell roughly 8% from July, with the expectations index down 8.7%. Morgan Stanley's chief economic strategist noted that while the data weakness hurts the economy, it also strengthens the case for the Fed to avoid a September rate hike.
The National Federation of Independent Business reported its Small Business Optimism Index climbed 2.4 points to 99.8 in July, the highest reading since August 2025 and above its 52-year average of 98.0. The improvement was tempered by a shift in what owners say hurts most: 27% cited labor quality or availability as their single biggest problem, up 8 points from June, surpassing inflation u2014 which fell 7 points to 14% u2014 for the first time this year. Labor force contraction driven by retirements and immigration enforcement has been especially acute in construction and agriculture.
Month-over-month sales at small businesses rose 0.2% in July, with year-over-year sales up 1.6% versus July 2025, according to U.S. Chamber of Commerce tracking. However, 31% of small businesses raised prices in July, 7 points lower than June, reflecting some easing of pass-through pressure. The Paychex Small Business Employment Watch showed weekly earnings at small firms rose to 3.14% in July u2014 the highest since December 2023 u2014 as owners logged more hours to offset staffing gaps, with manufacturing recording the strongest job growth across sectors.
The U.S. Energy Information Administration revised its 2026 retail gasoline price forecast upward by 3.7% and diesel by 5.4% in its latest short-term energy outlook, citing the ongoing conflict in the Middle East and its upward pressure on crude markets. WTI crude was trading around $82.22 per barrel. The EIA's revision reinforces why a Fed rate hike remains on the table even with softening consumer data: energy-driven price pressures could reignite broader inflation, keeping the central bank cautious ahead of its September meeting.
Technology sector earnings are on pace for roughly 50.8% year-over-year growth in 2026, with Alphabet, Micron, and Nvidia accounting for an outsized share of the gain u2014 without those three, Zacks Tech sector Q2 earnings growth would be 33.6% rather than 95.1%. Cisco dropped 8.4% last week despite raising revenue guidance and projecting its AI infrastructure revenue will nearly double to $7.5 billion over the next year, while Applied Materials fell 5.1% despite forecasting revenue above expectations, illustrating how elevated investor expectations are making even strong AI-linked results feel like confirmation rather than upside surprise. Nvidia earnings u2014 the season's final marquee report u2014 are expected the week after next.
The consumer is showing real cracks. July retail sales fell sharply, sentiment deteriorated in August, and the retailers reporting this week will tell operators whether discounting and fuel-driven cost pressure are compressing margins industry-wide. Any owner whose revenue is directly tied to consumer discretionary spending u2014 from restaurants to home services to specialty retail u2014 should watch Walmart's Thursday guidance for a realistic read on the second half.
Fuel and labor costs remain the two biggest operating headaches. The EIA has raised its diesel forecast by 5.4%, meaning logistics and delivery budgets should be revisited now rather than at year-end. Meanwhile, the NFIB data confirms that finding and keeping qualified workers has overtaken inflation as the top small-business problem u2014 and with the labor force contracting due to retirements and immigration policy, relief is unlikely soon. Owners in construction, manufacturing, and agriculture are feeling this acutely. Plan for sustained wage pressure and invest in retention.