Equities finished lower Friday despite a solid retail sales report that offered additional reasons for optimism over the health of the economic outlook.

International equities were broadly lower, led by a decline in Japanese stocks.

The utility, consumer staples and health care sectors led today, while financials, energy and materials were among the laggards, reflecting a defensive tone heading into the weekend.

Ten-year benchmark yields were little changed today, hovering near the 1.3 percent mark despite the latest hot inflation reading.

Stocks finished lower on the week but continue to hold on to strong year-to-date gains as the outlook for economic and earnings growth remains favorable.

The June retail sales report showed consumers spent at a faster-than-expected clip last month.

Sales rose 0.6 percent versus the prior month and increased 18 percent versus June 2020.

Restaurant sales were particularly strong, while autos, furniture and building materials declined, confirming the ongoing shift in consumer spending from goods toward services, particularly in the leisure and entertainment categories, as those areas of the economy return to normal.

We expect household spending to moderate a bit as the boost from stimulus checks fades, but ongoing labor-market improvement will, in our view, remain a strong wind at the back of the consumer, and thus economic growth.

Fiscal stimulus remains a lingering issue, with efforts to reach a bipartisan infrastructure deal apparently hitting a new snag as lawmakers have not yet reached agreement on how to fund the bill.

The proposal to heighten IRS enforcement as a source of revenue appears to have found some challengers, leaving Congress in search of additional ways to pay for the $1.2 trillion proposal.  

With the economy continuing to gain traction, we don’t view additional fiscal stimulus as critical for the expansion to persist, but a bipartisan deal would likely support the outlook for economic growth given the Fed will begin to throttle back on monetary-policy stimulus in the not-too-distant future.

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