Good morning,

Retail earnings are about to test how much tariff burden corporate American can handle.

Home Depot kicks things off tomorrow, with Target, Walmart, and TJX close behind. Analysts are already warning that apparel and department stores could be the weakest link.

Among the bigger bombshells, Trump is pushing to IPO Fannie Mae and Freddie Mac, and there's a rumor of tariff-funded stimulus checks.

The IRS shot it down quickly, though, saying no payments are in the works so far.

Meanwhile, inflation remains Powell's biggest riddle. On one hand, CPI cooled. On the other hand, PPI just spiked at its fastest pace in three years.

That combo could be a canary in the coal mine that consumer prices will soon follow as suppliers start passing on costs...

... and another reason policymakers remain split on rates heading into Jackson Hole.

Let’s dive in.

Five things to know before opening bell

🛍️ Retail earnings test

This week’s earnings will show how much tariff strain Americans can take. Home Depot reports tomorrow, with Target, TJX, and Lowe’s midweek, and Walmart, Ross, and BJ’s wrapping things up. The biggest casualties could be apparel and department stores, where Moody’s says slim margins and a cooling job market leave little cushion.

💸 IRS kills stimulus check buzz

Rumors of $1,390 tariff-funded stimulus checks lit up social media over the weekend, but the IRS quickly shut them down, saying there are no payments coming. A bill has been floated to fund checks out of tariff revenue, but it hasn’t advanced in Congress.

🏠 Trump pushes Fannie/Freddie IPO

The White House wants to IPO Fannie Mae and Freddie Mac and raise $30 billion. Trump has framed it as a fix for the housing “affordability crisis,” but analysts warn it could backfire by nudging mortgage rates higher. Citi pegs the bump at 0.1 to 0.2 percentage points, and Pimco cautions it could sap demand for mortgage-backed securities. 

📊 CPI cools, PPI pops

While CPI is cooling, July’s PPI jumped 0.9% — more than four times expectations — with core PPI up the most in three years. Economists warn it’s only a matter of time before businesses start passing those costs on. “Tariff-exposed goods are rising at a rapid clip, indicating businesses’ ability to absorb costs may be beginning to wane,” said Oxford Economics’ Matthew Martin.

😟 Consumer sentiment slides

Consumer confidence just logged its first drop in four months, with the Michigan index sliding to 58.6. Surprisingly, inflation expectations ticked up to 4.9%, and economists say the latest round of tariffs is to blame.

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🤨 Main Street doesn't buy Wall Street euphoria

Stocks are kicking off the week near record highs, but the relentless rally has Wall Street split... with traders leaning bullish and strategists drawing uneasy parallels to the dot-com bubble.

🤔 Investors might be too optimistic

A new Investopedia survey found 60% of investors are optimistic about the market, which is the highest reading of 2025. 

Nearly one-third expect more records in the next six months, and the share of respondents who think a recession is “unlikely” jumped from 31% to 38% between June and July.

But economists warn optimism may be running ahead of reality. 

Burton Malkiel, author of A Random Walk Down Wall Street, cautioned there are “worrisome signs that investor optimism may have gotten out of hand.”

Bank of America strategist Michael Hartnett flagged several red lights in the firm’s latest survey:

• 📊 More than 9 in 10 fund managers say equities are overvalued, the highest level in nearly 25 years

• 💵 Cash levels as a share of total assets dropped to 3.9%, a level that has historically preceded downturns

• 🌍 U.S. outflows into foreign markets are the largest since February, signaling growing “sell America” sentiment

Hartnett also pointed to one key metric that echoes the dot-com era: the S&P 500’s price-to-book ratio, now at 5.3, topping even early-2000 levels.

📉 Main Street less convinced

While institutional surveys sound upbeat, Americans aren’t buying it.

The University of Michigan’s latest sentiment index slipped on weaker jobs data and sticky inflation. “Consumers continue to expect both inflation and unemployment to deteriorate in the future,” said survey director Joanne Hsu.

Even among the “optimistic” camp, most respondents put themselves in the cautious category. That’s yet another reminder of the growing divide between Main Street and Wall Street.

Is Main Street picking up on something Wall Street can’t see from their ivory towers? We’ll soon find out.

📦 Powell boxed in ahead of Jackson Hole 

Juggling inflation and jobs is never easy, but this year’s Jackson Hole gathering finds Jerome Powell in one of the most precarious spots of his career. 

📊 PPI throws a wrench

Days after cooler-than-expected CPI data seemed to lock in a September rate cut, a hotter-than-expected PPI print scrambled the odds. 

Producer prices jumped at their fastest pace in three years, leading some economists to argue for more hikes, not cuts.

“These are broad-based inflationary pressures,” said Lauren Saidel-Baker of ITR Economics. “I see more reason for rates to be rising in order to not let inflation get away from us.”

In response, CME FedWatch data showed expectations for a September cut plunge from near-certainty to 85% within hours. “This emboldens those who are less dovish on the Fed that a September cut is not a done deal,” said BMO senior economist Jennifer Lee.

👷 Jobs are the wild card

Labor data is making the outlook even muddier.

The Bureau of Labor Statistics revised May and June job gains lower, signaling once again that the jobs market may be weaker than initially reported.

And then there’s the lingering question about new BLS figures showing a suspiciously large spike in the number of native-born American workers.

“Where did we find 3 million more people born 16 or more years ago in just seven months?” asked UBS economist Jonathan Pingle. “Clearly, creating people out of thin air or giving birth to 16-year-olds is implausible.”

If the next jobs report comes in weak, that will add even more pressure on Powell to act.

⚖️ A divided Fed

Last month’s FOMC meeting saw two dissenting votes from officials who wanted to cut in July. Others remain firmly against trimming rates in September.

“We may well see pressure on inflation, and we may also see pressure on unemployment, but the balance between the two is still unclear,” said Richmond Fed President Thomas Barkin.

Powell closes out the week with remarks at Jackson Hole. Economists say he has the chance to settle the market’s rate-cut debate, though few expect him to be as blunt as last year.

“Can’t imagine the pressure on Fed Chair Powell ahead of the Jackson Hole gathering,” said BMO’s Jennifer Lee.

Whatever Powell says, one side of the market is going to call it the wrong move.