The wildest week of 2024 has investors bracing for more volatility in the week ahead, with key insight on the consumer and inflation coming at a time when recession fears are top of mind. Stocks seesawed this week after July's disappointing jobs report last Friday spurred fears of an economic downturn, with the pullback exacerbated by the unwind of the yen carry trade over the weekend. On Monday, the S & P 500 posted its worst day since 2022, falling 3%. Then, on Thursday, the broader index recouped much of its losses, rallying 2.3% and posting its best session in roughly two years after investors got some encouraging data on the labor market. The comeback continued Friday, with all three major averages closing the session higher — though they each finished the week with losses. .SPX 5D mountain A wild week of trading With the market hypersensitive to economic data, numbers focusing on the consumer, labor and inflation could drive trading next week — especially with the shifting expectations for the Federal Reserve's monetary policy meeting in September. The CME Group's FedWatch tool now shows a 50-50 chance of the Fed cutting by a quarter- or a half-percentage point. The latest readings on consumer and producer prices are on deck, along with retail sales and new unemployment claims figures. Key earnings from Walmart and Home Depot are also due, which can give investors more insight into the state of the consumer economy. "People are jittery," said Scott Ladner, chief investment officer at Horizon Investments. "Everybody's on edge, and so the market's going to probably overreact to every little piece of information." Inflation, labor data Next week's inflation data could get less attention than it has over the past year when the Fed's fight against pricing pressures put inflation reports on center stage. Recently, it's been the labor market getting the most attention. "The market's caring much more about about labor markets and growth, than they do inflation right now," Ladner said. "Should inflation come in like monstrously hot that'll matter, but outside of something really, really on the fringes, it seems like the inflation story is sort of played out." To illustrate, Thursday's rally in stocks came after the latest weekly jobless claims — a data point that does not typically receive outsized attention — came in slightly weaker than expected, soothing investor worries about cracks in the labor market. The S & P 500 posted its best day since November 2022 following the report. Initial claims, due Thursday, are expected to come in at 233,000 for the week ended Aug. 10. The July consumer price index that's set to release Wednesday is expected to show an increase of 3% year over year, the same as in the prior reading, according to FactSet, with a 2.3% rise expected in the producer price index due out on Tuesday. Retail sales data for last month, due out on Thursday, could also get some attention, as investors see whether consumers who have soured on the economy are nevertheless continuing to spend on goods. July retail sales are expected to have risen 0.3%. 'Calming' markets Despite the market's late-week resurgence, many investors think that a correction in the S & P 500 could materialize. Citing data going back to 1990, Strategas' Ryan Grabinski noted the average intrayear drawdown for the broader index is 14.7%. The S & P 500 was last about 6% off its all-time high. At its lowest level this week, it was nearly 10% below that record. Investor concerns also linger. While worries around the yen carry trade unwind have largely settled, particularly after the Bank of Japan said it will not raise rates amid market volatility, many on Wall Street think there could be more volatility ahead. "Because a lot of the Japanese investors have been buying in U.S. markets and vice versa, that sort of rebalancing of the exchange rate is likely to cause a lot of instability in both of the equity markets," said RJ Assaly, chief market strategist at Toggle AI. But some suspect that stocks overreacted this week, with markets no longer pricing in a half-point reduction at the Fed's September meeting with the near certainty they had at the start of the week. Wharton School Professor Jeremy Siegel, who caused a stir Monday when he called for an emergency interest rate cut, has since backed off from those comments. Chen Zhao, chief global strategist at Alpine Macro, said stocks will be "calming down" in the week ahead as recession concerns ease. In his argument, he said the central bank cutting interest rates after inflation has already eased is a pattern that is different from other economic cycles. "If you look at all the previous cycles, inflation usually topped out when the economy is well into a recession," Zhao said. "That's precisely why I feel that this time around, people are misreading the economy, because the whole process is supply driven." He expects the current market set-up is not unlike the second half of the 1990s, when the Fed started to ease interest rates at a time when the U.S. economy was continuing to expand, turbocharging stocks. In 1998, the S & P 500 rallied 19% in the three months following the first Fed rate cut, according to a UBS note this week. "This is an economy which is slowing, but not slow. It's a labor market that is weakening, but not weak. And it's a consumer which is in an objectively strong spot with very little leverage on their balance sheets," said Horizon Investments' Ladner. He added that the next leg of growth could be fueled by the start of interest rate cuts from the Fed later this year. "We think this quarter could be choppy and sort of sideways, as people sort of wrestle with the growth scares and with recession fears, still," Ladner said. "But by the time we get to the fourth quarter, we think those things will resolve." Week ahead calendar All times ET Monday, Aug. 12 2 p.m. Treasury Budget (July) Tuesday, Aug. 13 8:30 a.m. Producer Price Index (July) Earnings: Home Depot Wednesday, Aug. 14 8:30 a.m. Consumer Price Index (July) 8:30 a.m. Hourly Earnings final (July) 8:30 a.m. Average Workweek final (July) Earnings: Progressive Thursday, Aug. 15 8:30 a.m. Export Price Index (July) 8:30 a.m. Import Price Index (July) 8:30 a.m. Initial Claims (08/10) 8:30 a.m. Empire State Index (August) 8:30 a.m. Philadelphia Fed Index (August) 8:30 a.m. Retail Sales (July) 9:15 a.m. Capacity Utilization (July) 9:15 a.m. Industrial Production (July) 9:15 a.m. Manufacturing Production (July) 10 a.m. Business Inventories (June) 10 a.m. NAHB Housing Market Index (August) Earnings: Applied Materials , Walmart , Tapestry , Deere & Co. Friday, Aug. 16 8:30 a.m. Building Permits preliminary (July) 8:30 a.m. Housing Starts (July) 10 a.m. Michigan Sentiment preliminary (August)
