The S&P 500 just experienced its worst week since the 2023 regional banking scare, with a mix of factors contributing to the decline in investor confidence. Despite a mixed August jobs report, the market saw significant losses, with the S&P 500 dropping over 4%, the Nasdaq Composite tumbling nearly 6%, and the Dow Jones Industrial Average falling almost 3%. This marked the worst weekly return for the Nasdaq 100 since 2022, driven by a steep decline in Nvidia stock.
Looking ahead, investors are closely monitoring fresh readings on inflation to gauge the Federal Reserve’s potential interest rate cuts at its upcoming September meeting. Additionally, the release of the first consumer sentiment reading for September will provide further insight into economic conditions.
In terms of corporate news, Apple’s annual iPhone event is set to kick off the week, with earnings results from Oracle, Adobe, and Kroger also on the agenda. Despite a relatively quiet week in terms of scheduled company announcements, market participants are eagerly awaiting updates from key players in the tech and retail sectors.
The August jobs report revealed that the US economy added 142,000 nonfarm payroll jobs, with the unemployment rate dropping to 4.2%. However, revisions to previous reports showed that the economy added fewer jobs than initially reported in June and July. This mixed report has left investors uncertain about the Federal Reserve’s next move, with debates over whether a 25 or 50 basis point rate cut will be necessary at the upcoming meeting.
Market reactions to speeches from Federal Reserve officials suggest a leaning towards a 25 basis point cut, with the probability of a 50 basis point cut decreasing. The Goldman Sachs economics team forecasts a 25 basis point cut in September but remains open to the possibility of larger cuts in subsequent meetings if economic conditions deteriorate further.
Inflation remains a key factor influencing the Fed’s decision-making process, with the final CPI reading before the September meeting set to be released. Expectations are for a modest increase in both headline and core inflation, with a benign CPI report potentially paving the way for a 50 basis point rate cut.
Apple’s highly anticipated iPhone event on Monday is expected to provide more details on the company’s Apple Intelligence AI platform, generating excitement among tech enthusiasts and investors alike. Analysts have tempered their earnings expectations for the current quarter, reflecting ongoing uncertainties in the market.
Overall, the week ahead promises to be eventful, with key economic data releases and corporate announcements shaping investor sentiment and market dynamics. Amidst ongoing uncertainties, market participants will be closely monitoring developments to navigate the volatile landscape and make informed investment decisions. Over the past 20 years, analysts have consistently adjusted their expectations for earnings by an average of 3%. This trend has continued in recent quarters, with a slight decrease in estimates compared to the previous quarter. Despite this shift in market sentiment, the overall outlook for stocks remains positive.
Citi US equity strategist Scott Chronert noted that while there have been some uninspiring estimate revisions for 2024 and 2025 earnings per share, they have remained relatively stable. This trend is not cause for alarm among macro strategists like Chronert, but it is something to keep an eye on as we approach third-quarter earnings season.
Looking ahead at the weekly calendar, there are a few key economic data releases and earnings reports to watch out for. On Monday, the New York Fed will release one-year inflation expectations for August, along with wholesale inventories for July. Earnings reports from companies like Oracle and Rubrik will also be in focus.
On Tuesday, the NFIB Small Business Optimism index for August will be released, along with earnings reports from Academy Sports and Outdoors, Dave & Buster’s, GameStop, and Petco.
Wednesday will bring important economic data including the Consumer Price Index for August, as well as earnings reports from companies like Manchester United and Vera Bradley.
Thursday will see the release of initial jobless claims for the week ending September 7, along with the Producer Price Index for August. Earnings reports from Adobe, Big Lots, Kroger, and RH will also be of interest.
Finally, on Friday, the Import Price Index for August and the University of Michigan consumer sentiment index for September will be released. While there are no notable earnings reports scheduled for Friday, it will still be an important day for economic data.
Overall, the slight decrease in earnings expectations is worth monitoring, but it does not significantly impact the positive outlook for stocks in the coming year. Investors should pay attention to upcoming economic data releases and earnings reports to gauge the health of the market moving forward.
