TSX seen lower; retail sales point to economic weakness

US markets presented a mixed picture as 83% of S&P 500 companies surpassed earnings expectations, propelling indices to new highs, yet Intel significantly underperformed by forecasting steeper Q3 losses and announcing a 22% headcount reduction alongside the cancellation of major European projects and a slowdown in Ohio factory construction. Macroeconomic data showed shrinking Canadian retail sales and contracting US manufacturing activity, though overall US business growth persisted. Meanwhile, optimism surrounding new U.S. trade deals boosted crude oil prices but pressured gold, as investors anticipate the Federal Reserve's upcoming economic commentary.

Analysis

The market is presenting a bifurcated view, with major U.S. indices reaching new highs driven by a strong earnings season where 83% of 155 reporting S&P 500 companies have surpassed expectations. However, this broad strength is starkly contrasted by significant negative guidance from Intel (INTC), which now anticipates steeper third-quarter losses, a 22% reduction in its workforce by year-end, and has canceled major capital projects in Germany and Poland while slowing construction in Ohio to align spending with market demand. This corporate-level weakness is echoed by deteriorating macroeconomic indicators, including an unexpected contraction in the U.S. manufacturing PMI for July and a 1.1% decline in Canadian retail sales for May. While overall U.S. business activity remains in expansion due to a robust services PMI, the slowdown in manufacturing and consumer spending warrants attention. Concurrently, investor sentiment is being shaped by trade policy, where new U.S. agreements are fueling optimism, consequently lifting crude oil prices (WTI at $66.20) but dampening demand for safe-haven assets like gold.

Key Decisions for Investors

• Investors should treat Intel's guidance as a significant red flag; the combination of a deeper loss forecast, substantial job cuts, and canceled capital expenditures suggests a severe deterioration in its business outlook, warranting a re-evaluation of long positions.
• Given the divergence between record-high equity indices and weakening macroeconomic data like the U.S. manufacturing PMI, it is prudent to be selective and monitor leading economic indicators closely, as the market may be underpricing emerging cyclical risks.
• Consider the clear rotation driven by trade sentiment, where progress on deals is favoring risk-on assets like crude oil over safe havens like gold, but be prepared for this trend to reverse if trade negotiations stall.
• Anticipate heightened market sensitivity around the upcoming Federal Reserve meeting, as any commentary on the mixed economic data—specifically the strong services PMI versus weak manufacturing—will be critical for near-term market direction.