The stock market rally is at its most volatile in months ahead of Wall Street's busiest week of the summer.
The S&P 500 (GSPC) and Nasdaq Composite Index (^IXIC) recently struggled to recoup losses during Friday's rally, posting their worst one-day drop since 2022. All three major indexes ended the last week of July lower, with the S&P 500 down more than 1% and the Nasdaq down more than 2.3%, while the Dow Jones Industrial Average (DJI) rose about 0.6%.
Over the next week, the Federal Reserve meeting, July employment reports, and earnings from tech giants Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), and Meta (META) will likely determine the market's direction as August begins.
Updates on jobs, services and manufacturing activity, and consumer confidence are also due.
This week is packed with corporate earnings reports, with 171 of the S&P 500 companies scheduled to report quarterly results. Notable names include AMD (AMD), Arm (ARM), Boeing (BA), McDonald's (MCD), and Starbucks (SBUX).
September's “Signal”
The Federal Reserve will announce its latest monetary policy decision next Wednesday, and markets are largely expecting the central bank to keep interest rates unchanged at its July meeting.
But recent economic developments have investors watching to see when the Fed will make its first rate cut. The core personal consumption expenditures (PCE) index, which excludes food and energy costs and is closely watched by the Fed, rose 2.6% year-over-year in June, the slowest annual increase in more than three years. Separate data from the same month showed that another inflation measure, the Consumer Price Index (CPI), fell sharply.
Meanwhile, the labor market is showing signs of cooling: The ratio of job openings to unemployed people has returned to pre-pandemic levels and the unemployment rate hit its highest level since November 2021 last month.
As a result, markets are pricing in the Fed's first rate cut in September, and investors will be eager to hear confirmation from Chairman Jerome Powell at his press conference on Wednesday.
“The overall tone of the meeting, including Chairman Powell's press conference, should suggest a September rate cut is a reasonable baseline without any up-front commitment,” Matthew Ruzzetti, chief U.S. economist at Deutsche Bank AG, said in a client note.
Labour market outlook
Monthly job gains will be in focus again on Friday, as economists continue to debate whether the labor market's recent cooling signals a normalization or a more serious downturn.
The July jobs report is expected to show the U.S. economy added 175,000 nonfarm payrolls and the unemployment rate is expected to remain steady at 4.1%, according to Bloomberg data. In June, the U.S. economy added 206,000 jobs, but the unemployment rate rose to 4.1%.
“While the expected 180,000 payroll gain in July is still a respectable increase, the direction will underscore a weakening job market,” Wells Fargo's economics team, led by Jay Bryson, wrote in a weekly note to clients. “As judged by a range of indicators, including the unemployment rate, turnover rates, contingent worker levels and small business hiring plans, the labor market is not only weaker than it was a year or two ago, but also weaker than pre-pandemic conditions.”
Against this backdrop, particular attention will be focused on whether the unemployment rate remains stable or rises as it has over the past three months.
Big tech companies step in
The recent stock market slump has also included a big sell-off in technology stocks.
Since July 10, the Round Hill Magnificent Seven ETF (MAGS), which tracks Nvidia (NVDA), Apple (AAPL), Alphabet (GOOGL, GOOG), Amazon (AMZN), Meta (META), Microsoft (MSFT) and Tesla (TSLA), has fallen about 12%.
Truist Co-Chief Investment Officer Keith Lerner recently told Yahoo Finance that the cut makes sense given how big tech stocks have rallied over the past year and how overpositioned many of them are. That, plus investors moving money to less-favored parts of the market rally that could benefit from a Fed rate cut, has characterized the market's movements over the past two weeks.
Earnings from four of the Magnificent Seven stocks — Amazon, Meta, Microsoft and Apple — could change the game, but it's a tough season to impress investors with earnings, as the post-earnings sell-offs from Alphabet and Tesla last week showed.
“When you look at last week's earnings, I don't think the earnings were bad,” Lerner said. “I don't think the business, the underlying business trends were bad, but I think they just weren't good enough relative to these very high margins. [expectations]”
And as Learner points out, stocks that miss Wall Street expectations for earnings, revenue or both have a significantly worse price reaction the next trading day than the typical price reaction seen over the past five years, according to research by Julian Emanuel at Evercore ISI.
“For now, earnings are the catalyst for movement, not the S&P 500 gains,” Emanuel wrote in a client note.
Weekly Calendar
Monday
Economic data: Dallas Fed manufacturing activity, July (-14.2 expected, -15.1 last)
Revenue: McDonald's (MCD), Phillips (PHG), Tilray (TLRY)
Tuesday
Economic data: S&P CoreLogic 20-City YoY NSA, May (previous 7.2%); Conference Board Consumer Confidence, July (forecast 99.7, previous 100.4); JOLTS Job Openings, June (previous 8.14 million); Dallas Fed Services Activity, (previous -4.1)
Revenue: Microsoft (MSFT), Advanced Micro Devices (AMD), BP (BP), Caesars Entertainment (CZR), Electronic Arts (EA), First Solar (FSLR), JetBlue (JBLU), Marathon Petroleum Corporation (MPC), Merck (MRK), Pinterest (PINS), Pfizer (PFE), Procter & Gamble (PG), Starbucks (SBUX), and SoFi (SOFI)
Wednesday
Economic data: MBA Mortgage Applications, week ending July 26 (-2.2% from previous); ADP Private Payrolls, July (+168K expected, +150K previous); Minnesota-Chicago PMI, July (44.0 expected, 47.4 previous); Employment Cost Index, Q2 (1.0% expected, 1.2% previous); Federal Reserve Monetary Policy Decision (no change expected for interest rates)
Revenue: Meta (META), Altria (MO), Arm (ARM), Boeing (BA), Carvana (CVNA), Generac (GNRC), Humana (HUM), Kraft Heinz Company (KHC), Mastercard (MA), Norwegian Cruise Line (NCLH), Paycom (PAYC), Qualcomm (QCOM)
Thursday
Economic data: Challenger Job Cuts YoY, July (previous +19.8%); Unit Labor Costs, Q2 (previous +4%); Nonfarm Productivity, Q4 (expected +1.6%, previous +5.2%); Initial Jobless Claims, week ended July 27 (previous 235,000); S&P Global US Manufacturing PMI, July final (previous 49.5); Construction Spending, MoM, July (expected +0.2%, previous -0.1%); ISM Manufacturing, July (expected 49, previous 48.5); ISM Payments Prices, July (previous 52.1)
Revenue: Apple (AAPL), Amazon (AMZN), The Block (SQ), Booking Holdings (BKNG), Canada Goose (GOOS), Coinbase (COIN), ConocoPhillips (COP), Crocs (CROX), DraftKings (DKNG), Marathon Digital Holdings (MARA), Mobileye (MBLY), Moderna (MRNA), Roku (ROKU), SiriusXM (SIRI), Wayfair (W)
Friday
Economic calendar: Nonfarm payrolls July (+175,000 expected, +206,000 previously);Unemployment rate January (4.1% expected, 4.1% previously);Average hourly earnings July m/m (+0.3% expected, +0.3% previously);Year-over-year change July (+3.7% expected, +3.9% previously);Average weekly hours worked July (34.4 hours expected, 34.3 hours expected);Labor participation rate July (62.6% previously);Factory orders June (+0.5% expected, -0.5% previously);Confirmed durable goods orders June (-6.6% previously)
Revenue: Chevron (CVX), Exxon Mobil (XOM)
