The S&P 500 just suffered its worst week since the 2023 regional banking scare as a mixed August jobs report failed to reinvigorate investor appetite.
In the holiday-shortened trading week, the S&P 500 (^GSPC) slid more than 4% while the Nasdaq Composite (^IXIC) tumbled nearly 6%. The Dow Jones Industrial Average (^DJI) dropped almost 3%. The first week of September also marked the worst weekly return for the Nasdaq 100 since 2022, led by a more than 12% decline in Nvidia stock (NVDA).
A fresh reading on inflation will headline the week ahead as investors continue to look for clues on how deeply the Federal Reserve will cut interest rates at its September meeting. Additionally, the first reading of consumer sentiment for September is slated for release on Friday.
In corporate news, Apple's annual iPhone event kicks off the week on Monday. Earnings results from Oracle (ORCL), Adobe (ADBE), and Kroger (KR) will lead an otherwise quiet week in scheduled company announcements.
'No clear winner' from the jobs report
The August jobs report showed the US economy added 142,000 nonfarm payroll jobs and the unemployment rate fell to 4.2% from 4.3% in July. Revisions to the June and July labor reports showed the US economy added 86,000 fewer jobs than initially reported in those months.
Capital Economics deputy chief North America economist Stephen Brown wrote in a note to clients Friday that given the report wasn't overly strong or exceedingly weak, it "did not signal a clear winner" in the debate over whether the Federal Reserve should cut interest rates by 25 or 50 basis points at its September meeting.
Speeches from Federal Reserve governor Christopher Waller and New York Fed president John Williams appeared to tilt the markets in favor of a 25 basis point cut.
As of Friday afternoon, markets were pricing in a 25% chance the Fed opts for a 50 basis point cut in September, down from a 40% chance seen the day prior, per the CME Fed Watch tool.
The Goldman Sachs economics team led by Jan Hatzius reasoned Friday's Fed speak was consistent with Goldman's forecast for a 25 basis point cut in September but indicates "that the Fed leadership is open to 50bp cuts at subsequent meetings if the labor market continues to deteriorate."
Price check
While signs of slowing in the labor market have been top of mind for market participants over the past few weeks, inflation remains a key piece of when and how aggressively the Fed will cut rates. Wednesday will bring the final inflation reading before the Fed's next policy decision on Sep. 18 with the release of the August Consumer Price Index (CPI).
Wall Street expects an annual gain of 2.6% for headline CPI, which includes the price of food and energy, down from the 2.9% seen in July. Prices are set to rise 0.2% on a month-over-month basis, in line with their monthly increase from July.
On a "core" basis, which strips out the volatile food and energy prices, inflation is expected to have risen 3.2% year over year, unchanged from the prior month. Monthly core price increases are expected to clock in at 0.2%, also unchanged from the prior month.
"Another benign CPI report could give enough FOMC members further 'confidence' that inflation is moving back to 2% on a sustainable basis for them to back a 50 bps rate cut," Wells Fargo's economics team led by Jay Bryson wrote in a note to clients on Friday. "If, on the other hand, the inflation data are hotter than expected, then the consensus likely will coalesce around a 25 bps reduction on Sept. 18."
iPhone intro
The top company release of the week will come on Monday when Apple (AAPL) will host its annual iPhone event. The event is expected to provide more details on Apple's Apple Intelligence AI platform.
Yahoo Finance's Dan Howley has the full preview.
'Uninspiring' earnings expectations
Analysts slashed their earnings expectations for the current quarter by 2.8% during July and August, per FactSet senior earnings analyst John Butters. As Butters pointed out in a note on Friday afternoon, analysts typically cut their earnings estimates as the quarter goes on. The current level isn't out of the ordinary, though. Analysts have slashed expectations by 3% on average for the past 20 years.
But still, it marks a shift in market sentiment compared to last quarter when analysts actually raised their estimates through the first two months of the quarter.
"Outside of the Magnificent 7, estimate revisions for 2024 and 2025 [earnings per share] have been uninspiring, but at least stable," Citi US equity strategist Scott Chronert wrote in a note to clients on Friday.
While not an alarming trend to macro strategists like Chronert just yet, the slight hit to what's otherwise been a solid fundamental case for stocks over the next year will be one to watch ahead of third quarter earnings season.
Weekly calendar
Monday
Economic data: New York Fed one-year inflation expectations, August (2.97% previously); Wholesale inventories, July final (0.3% expected, 0.3% previously)
Earnings: Oracle (ORCL), Rubrik (RBRK)
Tuesday
Economic data: NFIB Small Business Optimism, August (93.7 expected, 93.7 previously)
Earnings: Academy Sports and Outdoors (ASO), Dave & Buster's (PLAY), GameStop (GME), Petco (WOOF)
Wednesday
Economic data: Consumer Price Index, month-over-month, August (+0.2% expected, +0.2% previously); Core CPI, month-over-month, August (+0.2% expected, +0.2% previously); CPI, year-over-year, August (+2.6% expected, +2.9% previously); Core CPI, year-over-year, August (+3.2% expected, +3.2% previously); Real average hourly earnings, year-over-year, August (+0.7% previously)
Earnings: Manchester United (MANU), Vera Bradley (VRA)
Thursday
Economic data: Initial jobless claims, week ending Sept. 7 (230,000 expected, 233,00 previously); Producer Price Index, month-over-month, August (+0.2% expected, +0.1% previously); PPI, year-over-year, August (+0.2% expected, 0% previously)
Earnings: Adobe (ADBE), Big Lots (BIG), Kroger (KR), RH (RH)
Friday
Economic data: Import price index, month-over-month, August (-0.3% expected, +0.1% previously); University of Michigan consumer sentiment, September preliminary (68.0 expected, 67.9 prior)
Earnings: No notable earnings.