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The message from Fed Chair Kevin Warsh’s Jackson Hole speech was clear: the Fed is not ready to declare victory over inflation, and rate cuts may be further away than markets expect.

Inflation Remains the Main Concern 📊

July headline PCE inflation rose 0.2% month-on-month and 3.7% year-on-year, while core PCE increased 0.2% monthly and 3.3% annually.

Personal income rose 0.4%, but real consumer spending was essentially flat. The saving rate also increased to 3.0%, suggesting households are becoming more cautious.

With inflation still above 3%, the Fed has limited room to ease policy unless growth or employment weakens significantly.

Growth Is Slowing, Not Collapsing 📉

The second estimate of Q2 GDP showed annualised growth of 1.5%. That points to a resilient but moderating economy.

Business investment remains a bright spot. July durable-goods orders rose 1.1%, with orders excluding transportation up 0.4%. Continued spending on infrastructure, automation, semiconductors, data centres and AI supports parts of the equity market despite slower overall growth.

However, the trade deficit widened by $17.4 billion to $118.8 billion, which could weigh on third-quarter GDP if the trend continues.

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Consumers Are Under Pressure 🛍️

The University of Michigan’s final August consumer sentiment reading fell to 51.7, down from 55.2 in July and 58.2 a year earlier.

Although employment and incomes remain relatively resilient, households are still feeling the impact of higher prices. Slower inflation does not reverse the price increases of recent years, and that is increasingly affecting confidence and spending.

The Fed Is Still on Guard 🏦

At Jackson Hole, Warsh reaffirmed the Fed’s 2% inflation target and said policymakers still have “work to do.” He also argued that financial conditions are not excessively restrictive, pointing to resilient consumption, business investment, tight credit spreads and easier bank lending standards.

This challenges the assumption that slower growth will automatically lead to rate cuts.

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The ideal market scenario—soft growth, rapid disinflation and falling rates—has not yet arrived.

Instead, growth is moderating, consumers are cautious, business investment is holding up and inflation remains too high for aggressive easing.

In this environment, investors should focus on companies with durable earnings growth, pricing power and strong free cash flow. Industrials, infrastructure, automation, semiconductors and AI-related investment themes remain supported by capital spending, but valuation discipline is increasingly important.

Attention now turns to Friday’s U.S. employment report. Strong payrolls and wage growth would reinforce the higher-for-longer outlook, while a sharp deterioration in employment could strengthen the case for rate cuts.

Think of it as a funnel:

Macro → Market → Sector → Company → Fundamentals → Technicals → Trade

The goal is to find a strong chart supported by a clear economic and fundamental thesis.

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1. Start With the Macro Environment

Professional traders first assess:

• Economic growth

• Inflation

• Interest rates

• Financial conditions

• Employment and liquidity

• Market expectations

The key question is:

What type of environment are we in, and which assets are most likely to benefit?

For example, falling inflation, resilient growth and expected rate cuts may support equities, particularly rate-sensitive sectors. Rising inflation and weakening growth create a very different backdrop.

2. Identify Where Money Is Flowing

Once the macro picture is clear, traders look for the strongest markets and sectors.

If you’re bullish on US equities, you still have thousands of stocks to choose from. Relative strength helps narrow the field.

Which sectors are outperforming the broader market?

Which stocks are leading those sectors?

Rather than predicting which stocks might move, traders focus on areas already supported by strong capital flows and momentum.

3. Analyse the Fundamentals

Next, traders assess individual companies by looking at factors such as:

• Revenue and earnings growth

• Profit margins

• Earnings revisions

• Cash flow and debt

• Valuation

• Competitive positioning

• Upcoming catalysts

The key question is:

What could cause the market to reprice this company?

That might be stronger-than-expected earnings, rising analyst estimates, expanding margins or a new product opportunity.

The goal is to identify a gap between what the market expects and what may actually happen.

4. Use Technicals to Structure the Trade

Technical analysis comes last.

Instead of building an entire thesis around a breakout or indicator, traders use charts to determine:

• Entry points

• Stop-loss levels

• Trade invalidation

• Position size

• Profit targets

When supportive macro conditions, sector strength, improving fundamentals and technical confirmation align, the trade has a stronger foundation.

Macro tailwind → Sector strength → Fundamental strength → Technical confirmation

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No trade is guaranteed. Professional trading is about finding opportunities where the potential reward justifies the defined risk.

Build a Process, Not a Collection of Indicators

A structured process helps traders avoid conflicting signals and information overload:

1. Understand the macro regime.

2. Identify the markets benefiting from it.

3. Find the strongest sectors and themes.

4. Analyse the fundamentals.

5. Identify catalysts and changing expectations.

6. Use technicals to structure the trade.

7. Size the position appropriately.

The biggest mindset shift is to stop searching endlessly for signals and start building complete trade theses.

Learn the Professional Trading Process

The ITPM Professional Trading Masterclass teaches how to analyse markets from an institutional perspective and turn macroeconomic, fundamental and market information into actionable trading ideas.

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Core PCE, the Fed’s preferred measure of underlying inflation, rose 0.2% from June and remained at 3.3% year-over-year. Headline PCE also increased 0.2% monthly and held at 3.7% annually, slightly above expectations.

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Services inflation accelerated to 0.3% from 0.1% in June, while goods prices fell 0.1%. The stronger services reading is a concern because services prices are closely tied to domestic demand, wages and housing costs.

The data gives the Federal Reserve little reason to ease policy quickly. With inflation still elevated and progress toward the 2% target appearing to stall, interest rates may remain restrictive for longer than investors had hoped.

For markets, that could mean continued pressure from higher borrowing costs and bond yields. The key question is now how quickly inflation can resume its decline toward the Fed’s target

.

While the federal funds rate stayed at 3.50%–3.75%, the debate inside the Fed is clearly shifting: is another rate hike still on the table?

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A Divided Fed

The decision to hold was 9–3, with three officials dissenting in favour of a 25 bp hike. More importantly, several other participants also supported tightening, and many said further hikes could be needed if inflation doesn’t move sustainably toward 2%.

This makes the July decision look less like the end of tightening and more like a pause.

Inflation: Cooling, but Not Settled

Most officials still expect inflation to ease into 2026 as earlier shocks fade. But risks remain elevated—especially from energy, geopolitics, and strong demand linked to the AI investment boom.

That AI-driven capex is supporting growth, but it may also be keeping inflation stickier than expected.

Higher-for-Longer = Higher Yields

Markets care less about the last Fed decision and more about the path ahead. The minutes reinforced the idea that rates may stay higher for longer—or even rise again.

That pushed Treasury yields higher and contributed to a risk-off session on August 20:

• S&P 500: -0.87%

• Nasdaq: -1.00%

• Dow: -1.32%

The key takeaway: the assumption of imminent rate cuts is weakening.

What It Means for Equities

A higher-for-longer backdrop increases the discount rate on future earnings, which tends to:

• Favour quality companies with strong cash flow and balance sheets

• Support pricing power and earnings visibility

• Pressure high-multiple, long-duration growth stocks

This doesn’t kill growth stocks—but it raises the bar. Earnings strength matters more than ever.

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AI investment remains a major driver of both growth and inflation pressure, creating a paradox: it supports earnings, but may also keep rates higher for longer.

That tension could define the next phase of the market cycle.

The Fed didn’t hike—but it also didn’t close the door on doing so.

If inflation stalls, tightening is back in play. If it cools, the Fed can wait.

For investors, the message is clear: the “easy” rate-cut narrative is fading, and the focus shifts back to earnings quality, cash generation, and valuation discipline.

In this environment, quality + momentum becomes one of the most important combinations to watch.

The market now values Netflix more like a mature growth compounder, where returns depend on revenue growth, margin expansion, and capital returns rather than explosive subscriber gains.

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Yet the setup remains attractive: Netflix is guiding to 13–14% revenue growth in 2026 and a rise in operating margins from 29.5% to 31.5%, implying 20%+ operating income growth, while trading at roughly 20x forward earnings.

Still Early in Its Global Opportunity

Despite its scale, Netflix is far from saturated. It reaches less than half of its ~800 million addressable households and accounts for only about 5% of global TV viewing time.

This leaves room for growth in two ways: more subscribers and more engagement per user. Its global scale also reinforces a strong content moat, allowing successful shows to generate worldwide returns.

Three Key Growth Drivers

Netflix’s next phase is driven by three levers:

• Advertising: Expected to reach ~$3B in 2026, roughly doubling from current levels, with strong long-term margin potential.

• Pricing power: Password-sharing enforcement and selective price increases are lifting ARPU and improving subscriber quality.

• Membership growth: Still expanding, especially in international markets.

Together, these could add roughly $6B in annual revenue over time.

Profitability and Cash Flow Strength

Netflix is increasingly a cash-generating machine. Operating margins are set to expand to 31.5% in 2026, while revenue growth remains in the low-teens.

This combination allows earnings to grow faster than revenue. On top of that, Netflix is actively returning capital, including $4.7B in buybacks in Q2 2026 alone, boosting EPS growth further.

The Key Watchpoint: Engagement

The main concern is not profitability—it is engagement growth.

Viewing hours rose only about 2% in H1 2026, while content spending is set to increase by ~10%. If engagement does not accelerate, questions around content ROI will intensify.

This matters especially for advertising, where higher engagement directly drives inventory and pricing power.

Why the Stock Is Stuck

Recent guidance showed slower near-term growth (~12% in Q3) and a tighter 2026 revenue range of $51.0–$51.4B, leading to multiple compression.

The market is effectively waiting for proof of re-acceleration in growth and advertising momentum before re-rating the stock higher.

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Risks

Key risks include:

• Slowing subscriber growth offsetting ads and pricing

• Rising content costs without matching engagement gains

• Intense competition for consumer attention

• FX and international ARPU pressure

• Valuation sensitivity if growth disappoints

Valuation Perspective

At around 20x forward earnings, Netflix is priced for steady but not explosive growth.

If the company can deliver:

• ~12% revenue growth

• ~20% operating income growth

• ~22–24% EPS/FCF growth through 2028

then a mid-20s multiple could be justified.

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Netflix has transitioned from a hyper-growth disruptor into a high-quality global compounder.

The investment case now rests on:

• Scaling advertising

• Sustaining pricing power

• Improving engagement trends

• Expanding margins and buybacks

At current levels, the stock does not require heroic assumptions—just execution.

If Netflix can continue turning its massive global audience into higher revenue per user, it can remain a durable 20%+ earnings growth story, even without blockbuster subscriber growth.

Existing home sales fell 1.7% in July to a seasonally adjusted annual rate of 4.05 million homes, nearly matching expectations of 4.06 million. This followed a 1.4% decline in June.

While two straight monthly drops may seem weak, the broader picture is more stable than it appears.

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Mortgage Rates Remain the Key Constraint 📊

Regional trends were mixed. Sales fell 3.1% in the South and 2% in the Midwest, were flat in the West, and rose 2% in the Northeast.

The main headwind remains mortgage rates, which continue to limit affordability and keep many buyers on the sidelines. Still, the market has not seen a sharp downturn.

NAR Chief Economist Lawrence Yun called sales “remarkably stable” despite higher borrowing costs, noting that year-to-date sales are still up 2.4%.

Prices Stay Firm Despite Lower Sales

The median home price rose to $434,100, up 2% year over year.

At the same time, inventory fell 1.9% to 1.54 million units, underscoring a persistent supply shortage.

This tight supply is helping support prices even as demand softens, keeping the market more resilient than many expected in a high-rate environment.

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What Happens If Rates Fall? 📉

Looking ahead, mortgage rates remain the key variable.

Yun suggests the market would strengthen meaningfully if rates return closer to 6%, improving affordability and potentially bringing both buyers and sellers back into the market.

For now, housing activity is being constrained by financing costs rather than weak underlying demand. Sales are soft, but prices are still rising and year-to-date activity remains ahead of 2025.

If rates stay elevated, the market may continue to move sideways. But a drop toward 6% could quickly shift housing from a drag on growth to a key driver.

For investors, that makes mortgage rates the most important signal to watch, with homebuilders, lenders, and housing-related sectors positioned to benefit if affordability improves.

“What stock should I buy?” 💭

Institutional traders tend to start somewhere else:

“What is happening in the world, and where does that create opportunity?”

That difference is important.

Rather than starting with a stock and building a story around it, think top-down:

Macro → Sector → Company → Trade

Start with the economic environment. Identify which sectors should benefit. Then find the companies that best express that view.

But finding the opportunity is only half the job.

Before entering any trade, you should know:

• What would prove your thesis wrong?

• How much are you willing to lose?

• Does the potential reward justify the risk?

This is one of the biggest lessons from the institutional approach taught by Anton Kreil and ITPM 👇🏼

“Your edge isn’t predicting the next market move. It’s having a repeatable process for finding and managing opportunities”

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The ISM Services PMI edged up to 54.1 from 54.0 in June. While the reading was slightly below economists’ expectations of 54.5, any figure above 50 signals expansion, indicating that the largest part of the US economy continues to grow.

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One of the biggest positives from the report was a noticeable acceleration in business activity. The business activity index jumped to 59.1 from 55.4, while new orders climbed to 57.2, pointing to healthy customer demand and continued momentum for service providers. Inventories also increased modestly, suggesting businesses remain confident enough to replenish stock levels.

However, the labour market painted a less encouraging picture.

The employment component slipped back into contraction, falling to 47.4 after briefly returning to expansion in June. The decline suggests many service-sector businesses remain cautious about hiring despite strong demand, reinforcing signs that the US jobs market is gradually cooling.

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Inflation pressures also remain a concern. The prices paid index rose sharply to 70.3, up from 67.7, indicating that businesses are continuing to face elevated input costs. Petroleum-related products and plastics were once again among the commodities experiencing price increases, although more goods were reported as falling in price compared to the previous month, providing some evidence that pricing pressures are becoming more balanced.

Elsewhere in the report, backlogs of orders eased to 50.9, while supplier deliveries slowed, suggesting some of the supply chain pressures seen earlier in the year continue to moderate.

According to ISM Services Business Survey Committee Chair Steve Miller, respondents mentioned the impact of tariffs and the ongoing conflict in the Middle East far less frequently than in previous months. Instead, businesses highlighted the upcoming FIFA World Cup as a contributor to stronger business activity and new orders, with increased travel, hospitality and event-related spending supporting demand.

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Overall, the July report reinforces the view that the US services economy remains resilient. Strong business activity and healthy new orders continue to support growth, but weakening hiring and persistent inflation pressures present challenges that the Federal Reserve will be watching closely in the months ahead.

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The biggest weakness was concentrated in healthcare, where job openings fell by 147,000. Leisure and hospitality also saw a notable decline, shedding 86,000 openings, while wholesale trade and business services lost 74,000 and 71,000 positions respectively. Manufacturing and mining also recorded smaller declines, suggesting employers across several sectors are becoming more cautious about expanding their workforce.

There were, however, a few bright spots. Transportation, warehousing and utilities added 97,000 job openings, likely reflecting continued strength in logistics and supply chains. Federal government hiring also increased by 39,000 positions, partially offsetting weakness elsewhere.

The slowdown was not evenly spread across the country. Job openings declined in the Northeast, South and Midwest, while the West was the only region to record an increase, adding 32,000 openings during the month.

Despite fewer vacancies, the broader labour market remains relatively stable. Hiring held steady at 5.3 million, while total separations were largely unchanged at 5.4 million. Employees also appear to be maintaining confidence, with both quits (3.2 million) and layoffs (1.8 million) remaining virtually unchanged from the previous month.

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For investors and policymakers, the report reinforces the narrative of a labour market that is cooling gradually rather than deteriorating rapidly. Demand for workers is easing, but employers are not yet cutting jobs at a pace that would signal broader economic weakness. That balance is likely to be welcomed by the Federal Reserve, as softer labour demand without a meaningful rise in layoffs supports the prospect of easing inflationary pressures while reducing the risk of a sharp slowdown.

The months ahead will be closely watched to determine whether this moderation continues or whether hiring demand stabilises, providing further clues about the direction of the US economy and future interest rate decisions.

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The key catalyst was GM’s Q2 2026 results. The company beat expectations and raised full-year EBIT guidance to $14–16 billion, reflecting resilient North American demand and stronger pricing power. North American margins climbed to about 8.6%, up 2.5 percentage points year over year, driven by strong truck and SUV pricing and lower warranty costs.

Equally important, investors now see a cleaner EV story. After more than $10.9 billion in EV-related charges since late 2025, GM says the bulk of the reset is complete. The company is no longer chasing EV growth at any cost, instead leaning into its highly profitable truck and SUV business while steadily improving EV economics. That shift has removed a major overhang for the stock.

Shareholder returns are also playing a big role. GM approved a $6 billion buyback and raised its dividend by 20% to $0.18 per share. With more than $20 billion already repurchased in recent years, continued buybacks are steadily reducing share count and boosting EPS.

A more supportive policy backdrop is adding further tailwinds. Lower expected tariff costs and a less restrictive regulatory stance on fuel economy and EV rules are giving GM more flexibility to prioritise its most profitable vehicles.

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What Could Drive the Next Move Higher?

The next two quarters will determine whether this breakout has staying power.

North American margins are the key focus. If GM can maintain strong pricing on core models like the Silverado, Sierra, Tahoe, Suburban, and Escalade while keeping incentives stable, margins above 8% should remain intact. Any sign of rising discounts would be a concern.

Progress on EV losses is another important driver. Management expects a $1.0–1.5 billion improvement in 2026, and continued execution would further reduce investor concerns. Growing traction in hybrid versions of key trucks and SUVs could also strengthen demand without heavy EV-related costs.

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Capital returns should continue to support the stock. Ongoing buybacks from the $6 billion program will boost EPS, and any additional repurchase or dividend increases would be a clear positive catalyst.

The macro backdrop also matters. A stable U.S. auto market and steady consumer demand would help sustain momentum, while risks include weaker spending, higher rates, or policy shifts that pressure vehicle demand.

If GM continues delivering margin strength, reducing EV losses, and returning capital to shareholders, the stock still has room to run into the second half of 2026.

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Since then, the ECB has adopted a more cautious stance, signalling a “wait-and-see” approach as recent economic data has eased concerns about inflation. Softer inflation readings, moderating wage growth, weaker economic activity, and lower inflation expectations have collectively reduced the immediate need for further policy tightening.

Despite holding rates steady, the ECB acknowledged that uncertainty remains elevated. While the outlook for energy prices is broadly consistent with its June projections, ongoing volatility means the inflation outlook remains difficult to assess.

Policymakers cautioned that the full economic impact of higher energy costs has yet to be felt and will continue to monitor how these pressures feed through to inflation and broader economic conditions.

Speaking after the meeting, ECB President Christine Lagarde emphasised the importance of remaining vigilant. She warned that if energy prices stay elevated for an extended period, they are increasingly likely to push up inflation through indirect channels and so-called “second-round effects,” where higher costs spread more broadly across the economy.

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For investors and businesses, the latest decision suggests the ECB is balancing signs of easing inflation against the risk that persistent energy costs could reignite price pressures. Future policy decisions are therefore expected to remain firmly data-dependent, with incoming inflation and economic indicators playing a crucial role in determining the path of interest rates over the coming months.

Thousands of indicators. Endless YouTube videos. Countless strategies.

Ironically, all of this information often makes traders worse.

The best traders don’t succeed because they know more—they succeed because they filter better.

They simplify.

A good trading process doesn’t need twenty indicators or dozens of conflicting opinions. It needs clarity.

Focus on the variables that genuinely matter:

• Market direction.

• Sector strength.

• Company fundamentals.

• Risk management.

• Timing.

Everything else is secondary.

Many traders lose money not because they lack intelligence, but because they create complexity where none is needed.

The goal isn’t to predict every move.

The goal is to consistently identify high-probability opportunities and manage risk effectively.

Simple beats complicated.

Every time.

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They spend hours studying candlestick patterns, indicators, and chart setups, hoping to discover a hidden edge. In reality, professional traders spend far less time thinking about entries and far more time asking a different question:

“Where is capital flowing?”

Markets move because money moves.

Institutions allocate capital based on economic conditions, interest rates, earnings expectations, and broader market themes. By the time a retail trader spots a chart pattern, the bigger players have often already built their positions.

Instead of beginning with technical analysis, try starting with a top-down process:

• What is happening in the global economy?

• Which sectors are attracting capital?

• Which industries are benefiting from current trends?

• Which stocks are outperforming their peers?

Only once you understand these factors should you move to the charts.

Technical analysis helps with timing, but capital flows drive trends.

Most traders focus on how a stock is moving. Professionals focus on why.

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Attention will centre on Tuesday’s release of the June Consumer Price Index (CPI), one of the week’s most important reports. The data will provide fresh insight into whether inflationary pressures are continuing to ease following earlier elevated readings, while the accompanying real earnings figures will offer another perspective on household purchasing power. The NFIB Small Business Optimism Index will also be published during the morning session.

Inflation remains in focus on Wednesday with the release of June’s Producer Price Index (PPI), a key measure of wholesale prices that often provides an early indication of future consumer inflation trends. Markets will also digest the Empire State Manufacturing Index and the Federal Reserve’s Beige Book, which summarises economic conditions across the country ahead of the next Federal Open Market Committee meeting.

Thursday shifts the spotlight to consumer resilience, with June retail sales figures expected to provide an important gauge of spending momentum. Additional releases, including the Philadelphia Fed Manufacturing Index, pending home sales and business inventories, will help paint a broader picture of economic activity.

The week concludes on Friday with a series of reports covering the housing market, trade prices and industrial output. Housing starts and building permits will offer insight into construction activity, while industrial production and capacity utilisation figures will reveal the health of the manufacturing sector. Investors will also watch the preliminary University of Michigan consumer sentiment survey for clues about household confidence.

Taken together, the week’s data releases—particularly CPI, PPI and retail sales—are likely to play a significant role in shaping expectations for future Federal Reserve policy. As always, market reactions will depend not only on the headline figures themselves, but on how they compare with economists’ forecasts and previous readings.

Want to Build a Professional Trading Process?

Understanding that you need a process is the first step.

Building one is where the real work begins.

The framework I learned at ITPM completely changed the way I analyse markets—not by teaching another strategy, but by teaching how professionals think, prepare, and make decisions.

As a subscriber, you can access the Professional Trading Masterclass with an exclusive 30% discount.

If you’re ready to stop chasing strategies and start building a repeatable trading process, you can learn more here:

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– Ben

“Maybe I just need a better strategy.”

It’s one of the biggest misconceptions in retail trading.

Every day, traders jump from one strategy to another searching for the “holy grail.” One month it’s ICT. The next it’s Smart Money Concepts. Then it’s Elliott Wave, order blocks, supply and demand, indicators, or the latest strategy trending on YouTube.

The assumption is simple:

If I find the right strategy, I’ll become profitable.

Unfortunately, that’s rarely the problem.

The truth is that most traders don’t have a strategy problem.

They have a process problem.

Think about any successful profession.

A surgeon doesn’t wake up and randomly decide how to perform an operation.

A pilot doesn’t make decisions based on emotion halfway through a flight.

Professional traders aren’t any different.

They follow a repeatable process every single day.

Before they ever look for an entry, they’re asking questions like:

• What’s happening in the global economy?

• Which sectors are attracting capital?

• Which stocks are showing relative strength?

• Is this trade aligned with the broader market?

• How much risk am I taking?

Notice that none of those questions involve indicators or candlestick patterns.

That’s because entries come at the end of the process—not the beginning.

Retail traders often do the opposite.

They open TradingView, scan charts, find something that looks interesting and then try to justify taking the trade.

Professionals begin with the macro picture.

They identify where money is flowing.

They narrow down sectors.

They narrow down companies.

Only then do they use technical analysis to time an entry.

Technical analysis is a tool.

It isn’t the entire business.

This is why so many traders become frustrated.

They spend years changing strategies without ever changing the way they think.

Ironically, many profitable traders could swap strategies tomorrow and still make money because what creates consistency isn’t the entry.

It’s the framework behind every decision.

If you take one thing away from this article, let it be this:

Stop asking, “What’s the best strategy?”

Start asking:

“What’s my process before I place a trade?”

That single question will improve your trading more than learning another chart pattern ever will.

Want to Build a Professional Trading Process?

Understanding that you need a process is the first step.

Building one is where the real work begins.

The framework I learned at ITPM completely changed the way I analyse markets—not by teaching another strategy, but by teaching how professionals think, prepare, and make decisions.

As a subscriber, you can access the Professional Trading Masterclass with an exclusive 30% discount.

If you’re ready to stop chasing strategies and start building a repeatable trading process, you can learn more here:

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– Ben

Dieter explains why he prefers ETF exposure through the First Trust Nasdaq Cybersecurity ETF, ticker CIBR, rather than trying to pick individual cybersecurity winners. He also walks through a long call trade structure using November and August options, explaining the setup, the credit received, the risk/reward, and why a longer time horizon may make sense for this particular theme.

Watch now to see why AI-fuelled cyber risk could become one of the next big trades in the market.

US retail sales rose 0.9% month-over-month in May, significantly outperforming expectations for a 0.5% increase and accelerating from April’s downwardly revised 0.4% gain. The stronger-than-expected reading reinforces the view that consumer spending continues to provide a solid foundation for the US economy, despite persistent inflation concerns and heightened geopolitical uncertainty.

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Higher Fuel Prices Boost Headline Growth

A major driver behind May’s increase was a 3.4% jump in sales at gasoline stations as energy prices continued to climb amid escalating tensions and conflict involving Iran.

However, it’s important to note that retail sales data is not adjusted for inflation. This means a portion of the increase reflects higher prices rather than greater purchasing volumes.

Even after excluding gasoline sales, consumer spending remained healthy, with retail sales rising 0.7%.

Broad-Based Strength Across Categories

The underlying details paint a positive picture for consumer demand, with gains spread across multiple sectors.

Leading the way were miscellaneous store retailers, which saw sales increase by 2.3%, followed by nonstore retailers—primarily e-commerce businesses—up 1.5%.

Other notable increases included:

• Auto sales: +1.2%

• Furniture stores: +1.0%

• Health and personal care stores: +0.6%

• General merchandise stores: +0.4%

• Sporting goods, hobby and musical instrument stores: +0.3%

• Clothing retailers: +0.3%

The breadth of these gains suggests households remain willing to spend on both essential and discretionary items.

Not every sector participated in the rally. Sales at building material and garden equipment stores were unchanged, while food and beverage stores also showed little movement. Meanwhile, spending declined modestly at restaurants and bars (-0.1%) and electronics and appliance stores (-0.5%).

What It Means for Economic Growth

Perhaps the most important figure for investors was the so-called “control group” measure of retail sales, which excludes food services, auto dealers, building materials stores and gasoline stations.

This category feeds directly into GDP calculations and increased 0.7% in May, building on April’s 0.5% gain.

The strong control group reading points to continued momentum in consumer spending and supports expectations for solid second-quarter economic growth.

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The Federal Reserve’s Next Challenge

For policymakers at the Federal Reserve, the latest data presents a familiar dilemma.

On one hand, robust consumer demand suggests the economy remains healthy and resilient. On the other, stronger spending could complicate efforts to bring inflation sustainably back toward the central bank’s target.

With energy prices rising due to geopolitical tensions and consumer spending remaining firm, markets will be watching closely for any signs that demand-driven inflation pressures could re-emerge.

As the Federal Open Market Committee meets this week, May’s retail sales report strengthens the argument for a cautious approach to future interest rate cuts.

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Despite higher borrowing costs and ongoing geopolitical uncertainty, US consumers continue to spend.

The combination of stronger-than-expected headline sales, broad-based gains across key categories and robust GDP-related spending measures suggests that the world’s largest economy remains on solid footing—for now.

For investors, the message is clear: don’t underestimate the strength of the US consumer.