Stock Markets Are Enjoying a Summer Surge. What Could Rain on Gains.

(Photo by Joe Raedle/Getty Images)

It’s summer, and that means it’s time to stop worrying and unwind, right?

At least, that seems to be the market mantra as stocks climbed to new highs Thursday, supported by positive economic data. But there are signs this rally might be overheating.

The S&P 500 logged its ninth record close of the year on Thursday, bolstered by a fall in jobless claims filings and surprisingly strong retail sales for June.

As bank chiefs put it this week, with unemployment at 4.1%, consumers should be able to keep spending and driving the economy. And Americans are feeling good, with the net financial assets of U.S. households sitting at 366% of GDP at the end of the first quarter, up from 358% at the end of 2019, according to UBS analysts.

That positivity is coming even as interest rates remain at relatively high levels. Perhaps investors agree with Federal Reserve Gov. Christopher Waller, who argued Thursday that tariffs likely won’t lead to a lasting increase in inflation and the way is clear for rate cuts. In that case, even the Aug. 1 deadline for the imposition of import levies might not derail the stock market.

Still, it’s worth noting the signs of speculative frenzy. The so-called Bitcoin treasury strategy, popularized by MicroStrategy, has spread like wildfire across the market. While crypto legislation does promise to broaden the appeal of digital currencies, such a crowded trade has the potential to reverse sharply. More broadly, social-media driven increases for stocks such as Opendoor Technologies —which has tripled in a month—points to a return of the meme-stock phenomenon.

It’s never obvious what will break a calm spell, but investors should be wary of relaxing too much this summer.

— Adam Clark

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Netflix’s Outlook Beats Expectations. A Weaker Dollar Helps.

Netflix beat second-quarter earnings expectations, fueled by new subscribers, price increases, and a growing advertising business. The streaming giant also gave a better-than-expected revenue forecast for the third quarter and full year. A weakened U.S. dollar is helping, it said in a shareholder letter.

• Netflix reported earnings of $7.19 a share and revenue of $11.08 billion, up nearly 16% from a year ago. While other entertainment companies struggle with challenged cable businesses, Netflix has become the dominant global streamer, surviving competition from Disney, Amazon, and Apple with hits like Ginny & Georgia and Squid Game.
• It expects content will continue to drive viewership in the second half of the year, including the return of its popular Wednesday and a final season of Stranger Things.
• Netflix got 56% of its second-quarter revenue from outside North America. When the dollar weakened, Netflix earned foreign revenue in strengthening currencies like the euro, but booked it in the weakening dollar.
• The company’s third-quarter outlook is above expectations. Netflix expects earnings of $6.87 a share and revenue of $11.56 billion. It said the operating margin in the second half of the year would be lower than the first half because of sales and marketing costs for a larger content slate.

What’s Next: Netflix raised its full-year revenue forecast to between $44.8 billion to $45.2 billion and its operating margin forecast to 29.5%, but said the majority of the revenue forecast increase “reflects the recent depreciation of the US dollar vs. most other currencies.”

— Adam Levine and Janet H. Cho

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Tariffs Are Quietly Doing Damage on Inflation. More Is Coming.

There are signs that tariffs are pressuring prices higher. It isn’t as dramatic as in early 2021, when inflation jumped nearly a full percentage point each month from February to May. But the effects are trickling into the overall cost of goods and core goods, which exclude food and energy.

• A number of factors, including a lack of significant gains in auto prices, ample inventories, and price-sensitive consumers, are masking the extent of the shift in prices, but New York Fed President John Williams said Wednesday night that they are creeping into core goods prices.
• An index of the cost of furnishing and running a household, in particular, rose 1% in June, after increasing 0.3% in May, the Bureau of Labor Statistics reported this week. Another category that includes sporting goods, movie tickets, and theme-park admissions increased 0.4%.
• Apparel prices, which showed little effect from higher tariffs in recent months, climbed 0.4% in June, reversing months of declines. And the overall cost of core goods saw the largest monthly increase since February.
• The breadth of the rising inflation is important, said Omair Sharif, president of the research firm Inflation Insights. He pointed out that nearly all core goods prices outside of autos increased in June, suggesting that companies in general are starting to pass their tariff costs on to their customers.

What’s Next: While investors and economists are in a waiting game, they are waiting for prices to rise, rather than to stall out. The consensus view is that even with President Donald Trump pausing or reducing the “Liberation Day” levies he announced on April 2, inflation is likely to climb to at least 3% this year.

—Megan Leonhardt

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Crypto Gets a Win as Stablecoin Bill Passes Congress

The crypto industry notched a major victory on Thursday, securing legislation that could lead to digital assets becoming a significant part of Americans’ everyday lives.

• On Thursday afternoon, the House of Representatives in a 308-122 vote passed a bill that would set rules for so-called stablecoins, a type of cryptocurrency with its value pegged to the dollar and backed by reserves. It had already passed the Senate, so it now goes to President Donald Trump’s desk to be signed into law.
• The bill, called the Genius Act, is the culmination of a multiyear effort to lobby lawmakers over to crypto’s cause—and to finance the campaigns of others who promised to support the industry.
• There’s no better illustration of the crypto industry’s lobbying success than Trump. He was an outspoken Bitcoin skeptic during his last presidency but has since taken millions of dollars in crypto-tied campaign contributions, launched several of his own digital-assets ventures, and said he has the goal of making the U.S. the crypto capital of the world.
• Crypto assets have soared recently. Bitcoin is trading near a record high hit earlier this week. Smaller tokens XRP, Ethereum, and Solana were climbing early Friday. They were helped in part by a report saying Trump is preparing to sign an executive order as soon as this week to open up 401(k) plans to alternative investments, including cryptos.

What’s Next: The crypto industry wants more from lawmakers. High on the wish list of crypto boosters is legislation to establish rules for exchanges, brokers, and tokens. But it will be more difficult for the industry to build the coalition it needs to push through that larger agenda.

— Joe Light and Elsa Ohlen

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Lucid Takes Aim at Waymo, Tesla in Robotaxi Deal With Uber

Amid growing excitement over autonomous taxis, the luxury electric vehicle maker Lucid is jumping into a business currently dominated by Google’s Waymo and Tesla. Lucid will supply cars to the ride-hailing company Uber Technologies, equipped with self-driving technology by privately held Nuro.

• Uber aims to deploy 20,000 or more Lucid Gravity SUVs equipped with the Nuro Driver over six years, starting next year. Uber will invest $300 million in Lucid stock as part of the deal. Pricing for the vehicles wasn’t disclosed.
• Lucid’s Gravity SUV starts at $79,900, according to its website. Lucid is expected to produce about 20,000 vehicles this year, more than double last year’s production. Uber is also making a multi-hundred-million dollar investment in Nuro to develop the technology.
• Tesla started its robo-taxi operations in Austin, Texas, on June 22. Alphabet’s Waymo completes more than 250,000 self-driving cab rides a week in Los Angeles, Phoenix, and San Francisco, and collaborates with Uber on Waymo One robo-taxi services in Atlanta and Austin.
• Nuro will provide “Level 4 self-driving system” software that can drive passengers under normal conditions without a human driver, CNBC reported. Waymo’s vehicles are also Level 4, white Tesla’s Autopilot and Full Self Driving systems are Level 2, requiring human drivers behind the wheel.

What’s Next: “Nuro has spent nearly a decade building an AI-first autonomy system that’s safe, scalable, and vehicle-agnostic,” proven over five years of driverless deployments across multiple U.S. cities and states, Nuro CEO Jiajun Zhu said. Prototype robo-taxis developed by Lucid and Nuro are already being tested in Las Vegas.

— Al Root and Janet H. Cho

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Switching to Cane Sugar in Soda Would Disrupt Three Sectors

Soft-drink makers’ potential shift from high-fructose corn syrup to real sugar as an ingredient could have deep implications not only for the beverage industry, but the U.S. sugar cane and corn sectors, increasing beverage companies’ production costs, dent corn demand, and hurt crop processors.

• President Donald Trump brought up the potential change, telling his social media followers Coca-Cola would agree to use it in its signature soda. That would be a switch from the high fructose corn syrup it has used for decades, at least in the U.S. Coca-Cola hasn’t explicitly confirmed this change.
• The beverage giant’s website says it appreciates the president’s “enthusiasm” and more details on new innovative offerings “will be shared soon.” It isn‘t clear how changing the recipe would affect demand. In many other countries, soft drinks are already sweetened with cane sugar.
• There seems to be a growing consumer preference for natural ingredients like sugar over highly processed ones. PepsiCo CEO Ramon Laguarta said on Thursday that the company will give consumers products with sugar and natural ingredients if that is what they prefer.
• The U.S. produced 12 billion gallons of soda in 2024, and Classic Coke made up a quarter of that. Switching to cane sugar would require 1.4 million metric tons of additional sugar annually. Domestic cane growers would need to boost production by 36%, analytics firm Reflexivity said.

What’s Next: Such a production boost would require more land in places with the right weather, expanded capacity for mills to process the cane, and transportation. It could take at least two to three years to meaningfully increase domestic sugar cane production capacity, said Reflexivity. For more on this, read here.

— Evie Liu

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Do you remember this week’s news? Take our quiz below to test your knowledge. Tell us how you did in an email to thebarronsdaily@barrons.com.

1. Meta Platforms’s CEO Mark Zuckerberg is spending big on building superintelligence systems, with plans to spend how much on AI data centers this year, which would be almost double last year?

a. $70 billion
b. $60 billion
c. $50 billion
d. $40 billion

2. Warner Bros. Superman soared at the weekend box office, showing that Hollywood is back in a groove after a slow start to the year. Comscore senior media analyst Paul Dergarabedian said total domestic ticket sales of $4.7 billion this year are how much higher than this point in 2024.

a. 10%
b. 15%
c. 20%
d. None of the above

3. President Donald Trump, meeting with NATO Secretary General Mark Rutte in the Oval Office, threatened steep tariffs on products from Russia, and secondary tariffs on countries trading with Russia, unless there’s a peace deal with Ukraine in how many days?

a. 30
b. 35
c. 45
d. 50

4. The consumer price index rose 2.7% in June from a year ago, in line with expectations but higher than in May. Which of the following contributed to the rise?

a. Housing costs
b. Energy
c. Food
d. All of the above

5. It’s been 25 years since the dot-com bubble. How many years did it take the Nasdaq to get back to its highs after that bubble burst?

a. 5
b. 10
c. 15
d. 22

Answers: 1(a); 2(b); 3(d); 4(d); 5(c)

— Barron’s staff

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Callum Keown