U.S. stocks are poised for a challenging road to recovery as critical economic reports loom this week. Wall Street is on edge, bracing for updates on inflation, retail sales, and major retailer earnings that could impact the market’s rebound from its worst day in two years.
After a volatile week, marked by the unwinding of a Japanese yen-based carry trade and concerns over a weakening U.S. economy, all major indexes nearly reversed their weekly losses. The S&P 500 fell by less than 0.1%, the Nasdaq Composite was down 0.2%, and the Dow Jones Industrial Average saw a 0.6% drop, according to FactSet data.
This week, investors will closely watch several key economic indicators. The July Consumer Price Index (CPI) report, due out Wednesday, is expected to be a focal point. Economists forecast headline inflation to remain steady at 3% year-over-year, while core CPI, excluding volatile food and energy prices, is projected to slow slightly to 3.2% from 3.3% in June.
Brian Weinstein, head of global markets at Morgan Stanley Investment Management, indicated that inflation may stay above the Federal Reserve’s 2% target for a while. Persistent inflation in sectors like car and home insurance, alongside geopolitical uncertainties and U.S. election dynamics, complicate the inflation outlook.
As inflation affects consumer spending, companies in the consumer sector have started reporting signs of financial strain. Luxury goods giant LVMH noted a slump in second-quarter sales in its Asia-excluding-Japan segment, and McDonald’s reported that inflation is making lower-income consumers more selective with their spending. Airbnb is anticipating a slowdown in leisure travel, and other companies like Starbucks and McDonald’s have issued profit warnings, signaling a tough consumer environment.
Walmart and Home Depot, set to release their earnings reports on Tuesday and Thursday respectively, will offer further insights into consumer spending trends. Investors are looking for clues about the health of American households and potential impacts on the broader economy.
Brad Conger, CIO at Hirtle Callaghan & Co., warned that weakness in consumer spending might lead to reduced hiring and lower income levels, which could further impact economic growth. Despite recent mixed economic signals, such as a rebound in the service sector and a decrease in unemployment claims, the market remains jittery.
“Small positive surprises in economic data might not significantly alter market sentiment,” Conger said. “Markets are currently fragile and tend to overreact to news.”
Weinstein also anticipates continued market volatility but does not foresee a guaranteed recession. “There will be more market fluctuations,” he said. “But it doesn’t necessarily indicate a hard landing or a recession.”
Overall, the upcoming week’s economic and earnings reports will be critical in determining whether U.S. stocks can stabilize and continue their recovery or if they will face additional headwinds.
I am Aparna Sahu
Investment Specialist and Financial Writer
With 2 years of experience in the financial sector, Aparna brings a wealth of knowledge and insight to Investor Welcome. As an accomplished author and investment specialist, Aparna has a passion for demystifying complex financial concepts and empowering investors with actionable strategies. She has been featured in relevant publications, if any, and is dedicated to providing clear, evidence-based analysis that helps clients make informed investment decisions. Aparna Sahu holds a relevant degree or certification and is committed to staying ahead of market trends to deliver the most up-to-date advice.
