What to know this week

A volatile week of trading on Wall Street saw the stock market end the week close to where it left off last Friday.

Panic hit financial markets on Monday as the yen’s exchange rate performance spiked with volatility after investors quickly priced in higher recession chances and more dovishness from the Federal Reserve following the jobs report since the last week of July.

In the latter part of the week, markets corrected as new data on weekly jobless claims eased fears that the United States economy is quickly heading for a recession.

The whipsaw action left stocks almost flat on the week, despite Monday’s sharp red open. For the week, the S&P 500 (^GSPC) was almost exactly flat, while the Nasdaq Composite (^IXIC) fell less than 0.2%. The Dow Jones Industrial Average (^DJI) fell about 0.6%. On Monday alone, both the S&P 500 and the Nasdaq fell more than 3%.

Next week will provide investors with fresh fodder in the debate over how quickly and deeply the Federal Reserve should cut interest rates, with July’s consumer price index (CPI) and retail sales reports highlighting the economic calendar. Updates on consumer sentiment, weekly jobless claims and manufacturing output will also be in focus.

On the corporate front, earnings season continues to wind down, though the focus will remain on the consumer, with reports from Home Depot ( HD ), Walmart ( WMT ) and Alibaba ( BABA ) posting an otherwise quiet week for quarterly results .

Fed bets are crazy

After July’s jobs report raised fears that the Fed may have kept rates too high for too long, the heated debate on Wall Street shifted from when the Fed should start cutting to how much it should for the central bank to reduce interest rates.

From talk of an emergency cut between meetings to almost fully pricing the market in with a 100% chance of a 50 basis point cut in September, markets have been on a wild ride trying to gauge what the next move will be probably from the central part. banking.

Read more: What the Fed rate decision means for bank accounts, CDs, loans and credit cards

As of Friday afternoon, markets had a roughly 50 percent chance the Federal Reserve would cut interest rates by 50 basis points by the end of its September meeting, down from 75 percent a week earlier, according to the tool CME’s FedWatch.

However, some economists have argued that the prices are too aggressive.

“The combination of rising unemployment and lower inflation has further strengthened what was already a strong case for Fed easing, and we expect cumulative cuts of 200 (basis points) over the next 1-2 years,” wrote the chief economist of Goldman Sachs, Jan Hatzius. a note to customers on August 7.

The story continues

“However, we believe the market is pricing too aggressive in the near term, especially with the likelihood of a 50bp cut at the September 17-18 FOMC meeting.”

Inflation in focus again

The next test for the Fed’s debate will come on Wednesday with the release of July’s consumer price index (CPI), giving investors the latest look at inflation.

Wall Street expects core consumer prices, including food and energy prices, to post an annual gain of 3 percent, unchanged from June’s reading. Inflation is set to rise 0.2% month-on-month after falling 0.1% in June.

On a “core” basis, which excludes food and energy prices, inflation is expected to have risen 3.2% year-on-year, a slowdown from the 3.3% increase seen in June. Monthly core price increases are expected to rise 0.2%, compared with 0.1% in June.

“July’s CPI report will likely promote that inflation is calming down, even if it has not yet returned to the Fed’s target,” Wells Fargo senior economist Sarah House wrote in a note to clients.

A reading on retailing

A new reading on retail sales will also be closely watched on Thursday as investors look for clues about whether the US economy — and more importantly, the American consumer — is slowing.

Economists expect retail sales to rise 0.3% in July from the previous month. Excluding gasoline and cars, expectations are for a 0.2 percent increase, which would mark a deceleration from the 0.8 percent sales growth seen in June.

Bank of America Chief Economist Michael Gapen pointed out in a note to clients last week that a soft retail sales print “may not excite markets, which remain aware of downside risk.” But given June’s strong retail sales growth, a weaker print still “leaves spending on track for a fairly strong quarter.”

“Overall, if the (retail sales and inflation) data comes out as we expect, we expect the market to price in fewer cuts this year and reduce the likelihood of a big cut in September,” Gapen wrote.

Stocks will want “good” economic news.

The latest data from FactSet senior earnings analyst John Butters shows S&P 500 companies posting a 10.8% year-over-year rise in earnings, the fastest annual growth rate since the fourth quarter of 2021.

However, as Citi US equity strategist Scott Chronert wrote in a note to clients this week, “earnings have lagged slightly behind macro-driven price action over the past two weeks.”

That was exemplified by shares rising last week on a 2022 day, rising 2.3% as a release of typically benign weekly jobless data helped ease concerns about the economy.

DataTrek co-founder Nicholas Colas wrote in a note Friday morning that a rally of this magnitude following a report like initial jobless claims said “more about the fragile state of the stock market and nervousness about economic data than anything else. “.

This brings into focus next week’s data attack.

And if markets price in less Fed tapering and bond yields rise following next week’s data, that could be a positive catalyst for stocks as the market moves into a bad-news-bad-news environment and good news is good news.

“Not only will the good news be good, I think the good news will actually be very good and the bad news will be very bad,” Piper Sandler chief investment strategist Michael Kantrowitz said Friday in a video for customers.

“We’re going to see a lot of good days, a lot of bad days and a lot more market volatility than we’ve seen most of this year.”

Weekly calendar

Monday

Economic data: New York Fed One-Year Inflation Expectations, July (previously 3.02%)

Earnings: Rumble (RUM)

Tuesday

Economic data: NFIB Small Business Optimism, July (91.7 est., 91.5 previously); Producer Price Index, month over month, July (+0.2% expected, +0.2% previously); PPI, y/y, July (+2.3% est., 2.6% previously)

Earnings: Home Depot (HD), In Holdings (ONON)

Wednesday

Economic data: Consumer Price Index, month-on-month, July (+0.2% expected, -0.1% previous); Core CPI, month-on-month, July (+0.2% expected, +0.1% previous); CPI, year over year, July (+3% estimated, +3% previously); Core CPI, y-o-y, July (+3.2% expected, +3.3% previous); Real average hourly earnings, year over year, July (+0.8% previously); MBA mortgage applications, week ending August 9 (+6.9%)

Earnings: Brinker International (EAT), Canoo (GOEV), Cisco (CSCO), Dole (DOLE), UBS (UBS)

Thursday

Economic data: Initial jobless claims, week ending August 10 (236,000 est., 233,000 previously); Retail sales, month over month, July (+0.3% est., +0% previously); Retail sales ex-auto and gas, July (+0.2% expected, +0.8% previous); Import prices, month over month, July (-0.1% expected, +0.0% previous); Export prices, month over month, July (+0.7% previously); Industrial production, month over month, July (-0.2% expected, +0.6% previously); NAHB Housing Market Index, August (previously 42); Empire Manufacturing, August (-6 estimated, -6.6 previously);

Earnings: Applied Materials (AMAT), Alibaba (BABA), JD.Com (JD), Deere & Company (DE), H&R Block (HRB)

Friday

Economic data: University of Michigan consumer sentiment, preliminary in August (66.1. expected, 66.4 previously); Building permits month over month, July (-0.9% expected, +3.4% previously); Housing starts month over month, July (-0.2% est., +3% previously)

Earnings: No notable gains.

Josh Schafer is a reporter for Yahoo Finance. Follow X @_joshschafer.

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