MW Where's the inflation from tariffs? What stocks and earnings tell us about rising prices with June CPI on deck.

By Isabel Wang

Tuesday's consumer-price index report for June comes into sharp focus for the stock market this week

A fresh batch of inflation risks were emerging in July as President Donald Trump escalated his trade war. Copper prices (HG00) surged, tariff pressures bubbled up in earnings, and even a morning coffee could be getting more expensive.

But the stock market? It barely flinched.

The S&P 500 SPX and the Nasdaq Composite COMP both hit fresh records last week, even after President Trump unleashed more tariff threats and vowed not to back down on his new Aug. 1 deadline. Yet this week's consumer-price index report could test whether the bullish tone holds.

While Wall Street anticipates an uptick in June inflation due to recent tariffs, the stock market may shrug it off as a temporary, one-off increase - not a broader shift in inflation dynamics that could keep the Federal Reserve from cutting interest rates later this year, according to market strategists.

Financial markets may be desensitized to this inflation number, noted Thierry Wizman, global foreign-exchange and rates strategist at Macquarie Group.

"Investors have gotten more calm about the overall inflation outlook in the last few months," Wizman told MarketWatch in a phone interview. "I wouldn't say that the market has shifted toward disinflationary mode, but it's certainly less inclined to be worried about inflation."

Economists polled by the Wall Street Journal expect headline inflation to rise 0.3% for June. That would raise the 12-month headline CPI rate to 2.7%, up from 2.4% in the prior month. Core inflation, a more closely watched measure that strips out volatile food and energy costs, is also forecasted to increase 0.3% on a monthly basis and 3% on an annual basis.

See: A key piece of the next consumer-price report risks upsetting the bond market

The risk is that a hotter-than-expected June inflation report - one that Fed Chair Jerome Powell recently called among the most important for assessing the impact of tariffs - could slow the pace at which the central bank lowers interest rates. Importantly, that could also throw a wrench into the stock market's record-setting rally.

Wizman said how inflation breaks down will matter just as much as the headline and core CPI numbers. For now, tariffs are expected to mainly affect core goods prices, which markets may largely "ignore" if services inflation continues to show signs of easing, he added.

Services inflation carries much more weight in the CPI report - accounting for roughly 57% of the reading, compared with just 20% for core goods inflation.

However, if the June CPI report shows services inflation spiking again, along with a broad demand-driven increase in price pressures, investors will be "much more concerned that there's something underlying the numbers that is not related to tariffs, and it could give the Fed more justification for delaying a rate cut," Wizman said.

To be sure, U.S. consumers have been on edge over the past year. But investors still need confirmation from discretionary components of the services basket - such as airlines, used cars, apparel and furniture - to determine whether inflation is truly fading, according to Wizman.

See: Consumers are still struggling as inflation is a problem again, this food company says

Jim Smigiel, chief investment officer at SEI, said it could be that tariff-related inflation uncertainty has only affected "the consumer's mindset," yet hasn't significantly curtailed consumer behavior.

That's why Tuesday's CPI report is hardly the only event on the calendar that could be a market mover this week. The upcoming unofficial start to the second-quarter earnings season will offer a fresh lens into how corporate America has been adjusting to higher tariffs.

Investors will soon hear from some of the largest U.S. financial-services companies. JPMorgan Chase & Co. (JPM), Wells Fargo & Co. $(WFC)$, Citigroup Inc. (C) and BlackRock Inc. $(BLK.AU)$ will report quarterly results on Tuesday, followed by Bank of America Corp. $(BAC.SI)$, Morgan Stanley $(MS)$ and Goldman Sachs Group Inc. (GS) on Wednesday.

The S&P 500's "blended" earnings growth rate for the second quarter was 4.8% on Friday, which would mark the lowest rate reported by the large-cap index since the fourth quarter of 2023, according to John Butters, senior earnings analyst at FactSet Research. The blended rate includes actual results plus expected results for the quarter.

However, for the 21 S&P 500 companies that have already reported earnings for the second quarter, it has been a "weaker" start - with 71% delivering actual earnings per share above estimates, below the five-year average of 78%, Butters said in a Friday client note.

"The tariffs have produced a lot of uncertainty that has delayed [companies'] purchases and investment decisions, so that could be why corporate revenues might be a bit on the weak side," said Wizman.

This also could set the stage for earnings to surprise to the upside - particularly given recent weakness in the U.S. dollar DXY, which may support margins for U.S. companies' overseas businesses, Wizman noted.

See: Trump's latest tariff talk is doing something interesting to the dollar

SEI's Smigiel said the focus of second-quarter earnings remains on corporate guidance, or the lack thereof. In the first quarter of 2025, only 16% of reporting companies issued guidance for future quarters, compared with 27% during the same period in 2024, according to data compiled by Rational Wealth.

"The lack of ability for some U.S. companies to issue guidance was the bigger problem last quarter," Smigiel said. "What investors will be watching closely is, will these firms have more confidence to be able to offer something for investors for the second half of the year?"

In Smigiel's view, that could be a big boost to the stock market for the rest of 2025.

U.S. stocks finished lower on Friday after President Trump announced a 35% tariff on Canada, effective Aug. 1. The Dow Jones Industrial Average DJIA was off nearly 280 points, or 0.6%, while the S&P 500 fell 0.3%, and the Nasdaq lost 0.2%, according to FactSet data.

-Isabel Wang

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

July 13, 2025 12:00 ET (16:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.