After facing an onslaught of economic data at the close of August, investors are awaiting a light calendar and a shortened holiday week as the next Fed rate decision quickly approaches.
US markets will be closed on Monday for Labor Day, with updates on the services sector, the latest Federal Reserve’s Beige Book report, and a few corporate earnings being the highlights of the week ahead.
Stocks closed the last week of August in bullish mode after falling most of the month.
The Nasdaq Composite (^IXIC) led the gains, rising more than 3% last week while the S&P 500 (^GSPC) gained 2.5%. The Dow Jones Industrial Average (^DJI) lagged behind its peers, rising by 1.4%.
In this week’s economic calendar, Wednesday will present investors with a busier schedule, with service sector readings from S&P Global and the Institute for Supply Management due in the morning while the Fed’s Beige Book will be released that afternoon.
On the corporate side, Kroger (KR), GameStop (GME), and Zscaler (ZS) highlight a weak week of quarterly reports.
Last week, the important jobs report for August provided the latest evidence that the US labor market continues to slow, as the US economy created 187,000 new jobs last month, while the unemployment rate unexpectedly rose to 3.8% as more Americans sought work.
The data capped a week that also saw a sharp decline in employment and a downward revision of GDP growth estimates for the second quarter. Investors view this data as a sign that the Fed will choose not to raise interest rates at the conclusion of its policy meeting scheduled for September 19-20.
data from CME group showed Markets on Friday were 94% expecting the Fed to keep interest rates unchanged later this month, up from 80% in the previous week. Bets on another rate hike in November also fell as of Friday, to 34% from 47% in the previous week.
“Easing the slack in the labor market in (Friday’s) report, along with the friendly JOLTS report released earlier last week, should bolster the Fed’s hold-up case,” Michael Feroli, an economist at JPMorgan, wrote in a note to Reuters. later this month.” customers on Friday.
“The more interesting question is whether the midpoint will continue to predict another rally this year. Either way, the Fed leadership should be happy with a week that saw prospects for a soft landing.”
It was a “good week for those in the soft landing camp,” Ryan Sweet, chief US economist at Oxford Economics, wrote in a note on Friday.
“The August employment report gives the Fed plenty of leeway to leave policy flat for this year and next,” Sweet wrote.
“The trend in job growth has continued to slow, the unemployment rate has risen, labor force participation has increased and earnings growth has slowed, all signs that a better balance between labor supply and demand continues to develop. Rebalancing labor supply and demand is essential.” It’s going much smoother than we initially expected, which keeps the potential for a soft landing.”
Although developments in the economy may be favorable to the Federal Reserve – and thus investors – those looking at seasonal forces in the stock market may find less positives in the week ahead.
After a volatile August, stocks are now entering a historically bad month. Dating back to 1945, September has historically been the worst month of the year for the S&P 500, as the index fell, on average, by 0.7% during September, posting gains in less than half the time.
Although, as Yahoo Finance’s Jared Blaker pointed out last week, a rally to start 2023 could put history on investors’ side. When the S&P 500 is up more than 10% going into August, as was the case in 2023, the benchmark typically drops 3.2% in August. This year, the index fell 1.7% in August.
But during those years, the S&P 500 rose an average of 2.3% in September, and then gained more than 9% from September through the end of the year.
“We believe the caution agreed in September would be unwarranted,” Fundstrat’s Tom Lee wrote in a note on Friday. “In fact, we think the September prospects favor gains of 2% to 3%, supported by a downward shift in consensus views on inflation and inflation risks.”
Weekly calendar
Monday
Markets are closed for Labor Day.
Tuesday
economic data: Factory Orders, July (-2.5% expected, +2.3% prior); Durable Goods Orders, July (-5.2% Previously)
Earnings: Zescaler (ZS), GitLab (GTLB)
Wednesday
economic data: Mortgage MBA applications (+2.3% previously); US S&P Global Services PMI, August Final (previously 51); US S&P Global Composite PMI, August Final (previously 50.4); ISM Services PMI, August (52.5 expected, 52.7 prior); Federal Reserve Beige Book
Earnings: American Eagle Outfitters (AEO), ChargePoint (CHPT), C3.ai (AI), Dave & Buster’s Entertainment (PLAY), Express (EXPR), GameStop (GME)
Thursday
economic data: Initial Jobless Claims (235,000 expected, 228,000 previously)
Earnings: DocuSign (DOCU), RH (RH), Zumiez (ZUMZ)
Friday
economic data: Wholesale Inventories, MoM in July (-0.1% Previously)
Earnings: Kruger (KR), runway rental (rent)
Josh Schafer is a reporter for Yahoo Finance.
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