The wildest week of 2024 has investors bracing for more volatility next week, with key consumer and inflation data coming at a time when recession fears are at the fore. Stocks fell this week after last Friday’s disappointing July jobs report fueled fears of an economic recession, with the retreat exacerbated by a weaker yen over the weekend. On Monday, the S&P 500 had its worst day since 2022, falling 3%. Then on Thursday, the broader index clawed back much of its losses, rallying 2.3 percent for its best session in nearly two years after investors received some encouraging data on the labor market. The rally continued on Friday, with the three major averages closing the session higher – although each ended the week with losses. .SPX 5D Mountain A Wild Week of Trading With the market hypersensitive to economic data, consumer, job and inflation-focused numbers could drive trading next week — especially with changing expectations for the session of Federal Reserve monetary policy in September. CME Group’s FedWatch tool now shows a 50-50 chance the Fed will cut by a quarter or half a percentage point. The latest consumer and producer price readings are on deck, along with retail sales and new jobless claims data. Key earnings from Walmart and Home Depot are also due, which can give investors more insight into the state of the consumer economy. “People are nervous,” said Scott Ladner, chief investment officer at Horizon Investments. “Everyone is on edge, so the market will probably overreact to every little bit of information.” Inflation, labor data Next week’s inflation data could draw less attention than last year, when the Fed’s fight against price pressures put inflation reports in the spotlight. Recently, the labor market has attracted the most attention. “The market is much more interested in labor markets and growth than inflation right now,” Ladner said. “If inflation comes in like a monster hot, that will matter, but barring something really, really on the fringes, it looks like the inflation story is kind of playing out.” For example, Thursday’s rally in stocks came after the latest weekly jobless claims — a data point that doesn’t usually get too much attention — came in slightly weaker than expected, allaying investor concerns about cracks in the labor market. The S&P 500 posted its best day since November 2022 after the report. Initial claims, due on Thursday, are expected to come in at 233,000 for the week ended August 10. The July consumer price index due on Wednesday is expected to show a 3% year-on-year increase, the same as the previous reading, according to FactSet, with a 2.3% rise expected in the producer price index due on Tuesday . Last month’s retail sales data, due on Thursday, could also draw attention as investors look to see whether consumers who have weighed on the economy continue to spend on goods. July retail sales are expected to have risen 0.3%. ‘Quiet’ Markets Despite the market rally late in the week, many investors believe a correction could be in the S&P 500. Citing data dating back to 1990, Strategas’ Ryan Grabinski noted that the average annual decline for the broader index is 14.7%. The S&P 500 was last about 6% off its all-time high. At its lowest level this week, it was nearly 10% below that record. Investor concerns also remain. While worries about the yen have largely eased, particularly after the Bank of Japan announced it would not raise interest rates amid market volatility, many on Wall Street believe there could be more volatility ahead. “Because many of the Japanese investors have bought into the US markets and vice versa, this kind of exchange rate rebalancing is likely to cause a lot of volatility in both equity markets,” said RJ Assaly, chief market strategist at AI Swap. But some suspect stocks have overreacted this week, with markets no longer pricing in a half-point cut at the September Fed meeting with the near certainty they had at the start of the week. Wharton School professor Jeremy Siegel, who caused a stir on Monday when he called for an emergency rate cut, has since walked back those comments. Chen Zhao, chief global strategist at Alpine Macro, said stocks will “calm down” next week as recession worries ease. In his argument, he said the central bank’s rate cut after inflation has already eased is a pattern that differs from other economic cycles. “If you look at all the previous cycles, inflation has usually exceeded when the economy is in recession,” Zhao said. “That’s exactly why I feel like this time, people are misunderstanding the economy, because the whole process is supply-driven.” He expects the current market setup to be unlike the second half of the 1990s, when the Fed began easing interest rates at a time when the U.S. economy continued to expand, supercharging stocks. 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. “It’s an economy that’s slowing, but not slow. 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 its balance sheets,” said Horizon Investments’ Ladner. He added that the next leg of growth could be fueled by the start of Fed rate cuts later this year. “We think this quarter could be volatile and somewhat lopsided as people struggle with growth fears and recession fears, still,” Ladner said. “But by the time we get to the fourth quarter, we think those things will be resolved.” Calendar for next week All times ET Monday, Aug. 12 2 p.m. Public 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 Hourly Earnings Final (July) 8:30am Average Final Business Week (July) Earnings: Progressive Thursday, August 15 8:30 am. Export Price Index (July) 8:30 am Import Price Index (July) 8:30 am Initial Claims (08/10) 8:30am Empire State Index (August) 8:30 AM Philadelphia Fed Index (August) 8:30 AM Retail Sales (July) 9:15 am Capacity utilization (July) 9:15 am Industrial Production (July) 9:15 am Industrial Production (July) 10 am Business Inventories (June) 10 a.m. NAHB Housing Market Index (August) Earnings: Applied Materials , Walmart , Tapestry , Deere & Co. Friday, Aug. 16 8:30 am Preliminary Building Permits (July) 8:30 am Start of housing (July) 10 am. Michigan Sentiment Preliminary (August)
