👋 Good morning! Here's our Markets Reporter Josh Schafer with your preview of the week ahead.
What we're watching
🌊 Markets resume after a rough week: A volatile week of trading action on Wall Street saw the stock market finish the week just about where it left off the previous Friday.
The week ahead will give investors fresh fodder in the debate over how quickly and deeply the Federal Reserve should cut interest rates, with the July Consumer Price Index (CPI) and retail sales reports highlighting the economic calendar. Updates on consumer sentiment, weekly unemployment claims, and manufacturing production will also be in focus.
On the corporate side, earnings season continues to wind down, though the focus will remain on the consumer, with reports from Home Depot, Walmart, and Alibaba headlining an otherwise quiet week for quarterly results.
🎲 Fed bets run wild: After the July jobs report heightened fears the Fed may have held rates too high for too long, the hot debate on Wall Street shifted from when the Fed should start cutting to how much the central bank should slash interest rates.
From the discussion of an emergency inter-meeting cut to the market nearly fully pricing in a 100% chance of a 50 basis point cut in September, markets have been on a wild ride trying to assess what the next likely move will be from the central bank.
As of Friday afternoon, markets were pricing in a roughly 50% chance the Federal Reserve cuts interest rates by 50 basis points by the end of its September meeting, down from 75% a week prior, according to the CME's FedWatch Tool.
Still, some economists have been arguing that near-term pricing is too aggressive — even if they see significant cuts going forward.
🏷️ Inflation back in focus: The next test for the Fed debate will come on Wednesday, with the release of the July Consumer Price Index (CPI) offering investors the latest look at inflation.
Wall Street expects headline consumer prices, including the price of food and energy, to post an annual gain of 3%, unchanged from June's reading. Inflation is set to rise 0.2% on a month-over-month basis after declining 0.1% in June.
On a "core" basis, which strips out the food and energy prices, inflation is expected to have risen 3.2% year over year, a slowdown from the 3.3% increase seen in June. Monthly core price increases are expected to log a 0.2% increase compared to 0.1% in June.
"The July CPI report is likely to further the case that inflation is quieting down even if it has not yet returned all the way back to the Fed's target," Wells Fargo senior economist Sarah House wrote in a note to clients.
🛒 A reading on retail: A fresh reading on retail sales will also be closely tracked on Thursday as investors search for clues on whether the US economy — and importantly, the US consumer — is slowing.
Economists expect that retail sales rose 0.3% in July from the prior month. Excluding gas and autos, expectations are for a 0.2% increase, which would mark a deceleration from the 0.8% sales growth seen in June.
Bank of America's head of economics, Michael Gapen, highlighted in a note to clients last week that a soft retail sales print "may not excite markets, who remain conscious of downside risk." But given the large increase for retail sales in June, a weaker print still "leaves spending on track for a reasonably strong quarter."
"Overall, should the data
[retail sales and inflation] come in as we expect, we look for the
market to price in fewer cuts this year and reduce the likelihood of a
large cut in September," Gapen wrote.
Chart of the day
The latest data from FactSet senior earnings analyst John Butters shows S&P 500 companies are pacing for 10.8% year-over-year earnings growth, the highest annual growth rate since the fourth quarter of 2021.
Though, as Citi US equity strategist Scott Chronert wrote in a note to clients this week, "earnings have taken a bit of a backseat to the macro-driven price action in the last two weeks."
This was exemplified by stocks mounting their best one-day rally since 2022 last week, rising 2.3% as a typically benign weekly unemployment benefit data release 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 stock market's fragile state and nervousness about economic data than anything else."
This puts the upcoming week's
data onslaught — inflation data and retail sales in particular — in
particular focus.
"Not only is good news going to be good, I think good news is actually going to be very good, and bad news is going to be very bad," Piper Sandler chief investment strategist Michael Kantrowitz said in a video to clients on Friday.
"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."
Morning Brief is written and edited by Ethan Wolff-Mann. For the web version, click here. Follow all the action throughout the day on Yahoo Finance and on the Yahoo Finance app.
Earnings and economic calendar
Monday
Economic data: New York Fed one-year inflation expectations, July (3.02% previously)
Earnings: Rumble (RUM)
Tuesday
Economic data: NFIB Small Business Optimism, July (91.7 expected, 91.5 previously); Producer Price Index, month over month, July (+0.2% expected, +0.2% previously); PPI, year over year, July (+2.3% expected, 2.6% previously)
Earnings: Home Depot (HD), On Holdings (ONON)
Wednesday
Economic data: Consumer Price Index, month-over-month, July (+0.2% expected, -0.1% previously); Core CPI, month over month, July (+0.2% expected, +0.1% previously); CPI, year over year, July (+3% expected, +3% previously); Core CPI, year over year, July (+3.2% expected, +3.3% previously); Real average hourly earnings, year over year, July (+0.8% previously); MBA Mortgage Applications, week ending Aug. 9 (+6.9%)
Earnings: Brinker International (EAT), Canoo (GOEV), Cisco (CSCO), Dole (DOLE), UBS (UBS)
Thursday
Economic data: Initial jobless claims, week ending Aug. 10 (236,000 expected, 233,000 previously); Retail sales, month over month, July (+0.3% expected, +0% previously); Retail sales ex-auto and gas, July (+0.2% expected, +0.8% previously); Import prices, month over month, July (-0.1% expected, +0.0% previously); 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 (42 prior); Empire Manufacturing, August (-6 expected, -6.6 prior);
Earnings: Applied Materials (AMAT), Alibaba (BABA), JD.Com (JD), Deere & Company (DE), H&R Block (HRB)
Friday
Economic data: University of Michigan consumer sentiment, August preliminary (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% expected, +3% previously)
Earnings: No notable
earnings.
