Anika Begay
The wildest week of 2024 saw investors brace for more volatility in the week ahead, with key consumer and inflation data coming at a time when recession fears are front and center. Stocks have been swinging this week after last Friday’s disappointing July jobs report stoked fears of an economic downturn, with the pullback exacerbated by the end of the yen carry trade over the weekend. On Monday, the S&P 500 had its worst day since 2022, falling 3%. Then on Thursday, the broader index recouped most of its losses, rising 2.3% and posting its best session in about two years after investors received some encouraging labor market data. The rally continued on Friday, with all three major averages closing the session higher, although each ended the week with losses. .SPX 5D mountain A week of wild trading With the market hypersensitive to economic data, numbers focused on consumers, jobs and inflation could drive trading next week, especially with shifting expectations for the Federal Reserve’s September policy meeting. CME Group’s FedWatch tool now shows a 50% chance of the Fed cutting by a quarter to half a percentage point. The latest readings on consumer and producer prices are due, along with retail sales and new jobless claims figures. Major earnings from Walmart and Home Depot are also due, which could give investors a deeper look into the state of the consumer economy. “People are nervous,” said Scott Ladner, chief investment officer at Horizon Investments. “Everyone is on edge, and so the market will probably overreact to every bit of information.” Inflation, Jobs Next week’s inflation data may get less attention than it has in the past year, when the Fed’s fight against price pressures has put inflation reports front and center. Lately, it’s been the labor market that’s gotten the most attention. “The market is much more concerned about labor markets and growth right now than it is about inflation,” Ladner said. “If inflation were to get to monstrously high levels, that would matter, but other than something really, really marginal, it looks like the inflation story is kind of over.” To illustrate, Thursday’s rally in stocks came after the latest weekly jobless claims, a data point that doesn’t typically get a ton of attention, were slightly weaker than expected, easing investor concerns about cracks in the labor market. The S&P 500 had its best day since November 2022 after the report. Initial claims, due Thursday, are expected to come in at 233,000 for the week ended Aug. 10. The July consumer price index, due Wednesday, is expected to show a 3% year-over-year increase, the same as the previous reading, according to FactSet, with a 2.3% gain expected in the producer price index due Tuesday. Last month’s retail sales data, due Thursday, could also draw some attention, as investors look to see whether consumers who have had a downturn in the economy are still spending on goods. July retail sales are expected to have risen 0.3%. Markets ‘Calming’ Despite the market’s late-week rally, many investors are thinking a correction could materialize in the S&P 500. Citing data going back to 1990, Strategas’ Ryan Grabinski noted that the average intra-year decline for the broader index is 14.7%. The S&P 500 was last about 6% off its all-time high. At its lowest this week, it was nearly 10% below that record. Investor concerns also persist. While worries about the unwinding of the yen carry trade have largely subsided, especially after the Bank of Japan said it would not raise rates amid market volatility, many on Wall Street think there could be more volatility ahead. “Since a lot of Japanese investors have been buying into U.S. markets and vice versa, that kind of rebalancing of the exchange rate is likely to cause a lot of volatility in both equity markets,” said RJ Assaly, chief market strategist at Toggle AI. But some suspect stocks have overreacted this week, with markets no longer pricing in a half-point cut at the Fed’s September meeting as close to a certainty as they had earlier in the week. Wharton School professor Jeremy Siegel, who caused a stir on Monday when he called for an emergency interest rate cut, has since backtracked on those comments. Chen Zhao, chief global strategist at Alpine Macro, said stocks will “calm down” in the coming week as recession worries ease. In his argument, he said the central bank’s interest rate cuts after inflation has already subsided are different patterns from other economic cycles. “If you look at all the previous cycles, inflation usually peaks when the economy is in a full recession,” Zhao said. “That’s why I think people are misreading the economy this time, because the whole process is supply-driven.” He expects the current market setup to be no different from the second half of the 1990s, when the Fed began easing interest rates at a time when the U.S. economy was still expanding, giving stocks a boost. In 1998, the S&P 500 rallied 19% in the three months after the Fed’s first rate cut, according to a UBS note this week. “This is an economy that’s slowing, but not slowing. It’s a labor market that’s weakening, but not weak. And it’s a consumer that’s in an objectively strong position with very little leverage on their balance sheets,” said Ladner of Horizon Investments. He added that the next round of growth could be fueled by the Fed’s start of rate cuts later this year. “We think this quarter could be choppy and a little bit sideways, as people are still grappling with growth fears and recession fears,” Ladner said. “But by the time we get to the fourth quarter, we think those things will be resolved.” Upcoming Week Calendar All times are ET Monday, August 12 2:00 PM Treasury Budget (July) Tuesday, August 13 8:30 AM Producer Price Index (July) Earnings: Home Depot Wednesday, August 14 8:30 AM Consumer Price Index (July) 8:30 AM Final Hourly Earnings (July) 8:30 AM Final Average Work Week (July) Earnings: Ending Thursday, August 15 8:30 AM Export Price Index (July) 8:30 AM Import Price Index (July) 8:30 AM Initial Claims (08/10) 8:30 AM Empire State Index (Aug) 8:30 AM Philadelphia Fed Index (Aug) 8:30 AM Retail Sales (July) 9:15 AM Capacity Utilization (July) 9:15 AM Industrial Production (July) 09:15 Manufacturing Production (July) 10:00 Business Inventories (June) 10:00 NAHB Housing Market Index (August) Earnings: Applied Materials, Walmart, Tapestry, Deere & Co. Friday, August 16 8:30 Preliminary Building Permits (July) 8:30 Construction Starts (July) 10:00 Preliminary Michigan Sentiment (August)
