What you should know this week

Stock markets posted their best week of 2024 as fresh economic data helped ease recession fears.

Over the week, the S&P 500 (^GSPC) rose about 4% and the Nasdaq Composite (^IXIC) rose more than 5.2%. Meanwhile, the Dow Jones Industrial Average (^DJI) rose about 3%.

This week, market focus will shift to the Federal Reserve, with Fed Chairman Jerome Powell expected to speak at the Jackson Hole Symposium on Friday morning. Investors will be listening closely for hints on when the Fed will cut interest rates in 2024, and by how much.

On the corporate front, retail earnings reports will remain in focus, with announcements expected from Lowe’s (LOW), Target (TGT), Macy’s (M), TJX (TJX), and BJ’s (BJ).

All eyes on the Fed

A busy week of economic data played a pivotal role in stocks’ recovery this week. After recession fears mounted following a weaker-than-expected jobs report, this week’s data helped calm investors.

The latest printed data showed that inflation continues to decline toward the Federal Reserve’s 2% target while consumer spending remains steady and layoffs do not rise.

In short, economists and Wall Street strategists have argued that data released this week shows that the so-called soft landing, in which the U.S. economy avoids a sharp economic slowdown as inflation falls back to the Federal Reserve’s 2% target, is now firmly on the horizon.

“This week’s busy data calendar has delivered mostly good news,” Michael Gapen, head of economics at Bank of America Securities, wrote in a weekly note to clients on Friday. “Inflation has been generally subdued, and activity continues to look healthy. The recent data stream is consistent with our soft landing expectations.”

A quiet week of economic data won’t do much to change that narrative. But Fed Chairman Jerome Powell’s speech at the Jackson Hole symposium could change market expectations for a rate cut.

“The easiest thing for Fed Chairman Powell to do is to repeat his July message,” Gapen wrote. “The evolution of the FOMC’s language in July would suggest that the committee is “very close” or “close” to the point at which monetary policy easing is likely to occur. A more benign signal would be a statement that the committee wants to avoid “unexpected weakness” in the labor market, rather than simply respond to it after it has occurred.”

As of Monday morning, Markets determine prices. There was a 72% chance the Fed would cut rates by 25 basis points by the end of its September meeting, and a 28% chance of a 50 basis point cut. A week ago, markets were pricing in a 50% chance the Fed would cut deeper.

The story continues

Equal feelings

After two weeks of market volatility, the S&P 500 is now back near record highs. Technology stocks have pulled out of the recent market bottom and led the market higher over the past few sessions. Fed rate cuts are on the horizon, and strategists are generally happy with the overall trajectory of the U.S. economy.

By mid-August, the market appeared to be back at the level it entered the month at. But after the worst selloff of 2024, some strategists argue that things look a little different now.

“With the market pulling back, and especially the more aggressive pullback on the growth side of the market, sentiment seems more balanced now than it was prior to this month,” Drew Pettit, director of U.S. equity strategy at Citigroup, told Yahoo Finance.

Pettit’s team uses an indicator called the Levkovitch Index, which takes into account investors’ short positions and leverage, among other factors, to determine market sentiment. The current reading is 0.31, below the 0.38 that indicates the market is entering a state of euphoria, or overextended peak. As the chart below shows, previous periods where the market extends into euphoria are often followed by declines.

That helps bolster Citi’s equity strategy team’s conclusion that stocks have room to run higher this year. Citi expects the S&P 500 to end the year at 5,800. With growth areas of the market like technology being the hardest hit in the recent pullback, Pettit said growth stocks “are looking progressively more attractive here.”

Weekly Calendar

Monday

Economic data: Leading Index, July (-0.3% expected, -0.2% previously)

Profits: Estée Lauder (EL), Palo Alto Network (PANW)

Tuesday

Economic data: Philadelphia Fed Non-Manufacturing Activity Index, Aug (-19.1 Previous)

Profits: Lowe’s (LOW), XPeng (XPEV), Toll Brothers (TOL)

Wednesday

Economic data: MBA Mortgage Applications, Week Ended August 16, (+16.8% Previous); FOMC Meeting Minutes, July

Profits: Macy’s (M), Target (TGT), TJX (TJX), Snowflake (SNOW), Synopsys (SNPS), Urban Outfitters (URBN), Zoom (ZM)

Thursday

Economic data: Initial Jobless Claims, Week Ending August 17 (227.00 previously); US Global Manufacturing PMI, Preliminary in August (49.6 previously); US Global Services PMI, Preliminary in August (55 previously); US Global Composite PMI, Preliminary in August (54.3 previously); Existing Home Sales, MoM, July (+0.3% Expected, -5.4% Previous)

Profits: Advance AutoParts (AAP), BJs (BJ), Cava (CAVA), Intuit (INTU), Peloton (PTON), Red Robin (RRGB), Ross Stores (ROST), Viking Therapeutics (VKTX), and Workday (WDAY)

Friday

Economic data: New Home Sales MoM, July (+2.6% Expected, -0.6% Previous); Kansas City Fed Services Activity, August (-4 Previous)

Profits: No noticeable gains.

Josh Schaffer is a reporter at Yahoo Finance. You can follow him on X @_Joshshafer.

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