Stocks had their best week of 2024 as fresh economic data helped ease recession fears.
For the week, the S&P 500 (^GSPC) popped nearly 4% and the Nasdaq Composite (^IXIC) soared more than 5.2% higher. Meanwhile, the Dow Jones Industrial Average (^DJI) rose almost 3%.
This week, a relatively quiet economic calendar will shift the market focus to the Federal Reserve as Chair Jerome Powell is expected to speak Friday morning at the Jackson Hole Symposium. Investors will be closely listening for hints on when, and how much, the Fed plans to cut interest rates in 2024.
On the corporate side, retail earnings reports will continue to be 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 economic data week played a pivotal role in the stock rebound this week. After fears of recession intensified following a weaker-than-expected jobs report, this week's data helped calm investors.
The latest data prints have shown inflation continues to fall toward the Fed's 2% goal while consumer spending holds up and layoffs aren't ticking higher.
In sum, economists and Wall Street strategists have argued this week's data dump shows the vaunted soft landing, where the US economy avoids a sharp economic downturn as inflation retreats to the Fed's 2% goal, is now firmly back in sight.
"This week's jam-packed data calendar delivered mostly good news. Inflation was generally tepid, and activity still looks healthy," Bank of America Securities head of economics Michael Gapen wrote in a weekly note to clients on Friday. "The recent data flow is consistent with our soft-landing forecast."
A quiet week of economic data will bring little to change that narrative. But Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Symposium could alter market expectations for rate reductions.
"The easiest thing for Chair Powell to do would be to repeat his message from July," Gapen wrote. "An evolution of the July FOMC language would suggest the committee is 'very close' or 'close' to the point where easing is likely to occur. A more dovish signal could be a statement that the committee wants to avoid 'unexpected weakness' in the labor market, rather than simply responding to it after it occurs."
As of Monday morning, markets are pricing in a 72% chance the Fed will lower interest rates by 25 basis points by the end of its September meeting, and a 28% chance of a cut of 50 basis points. A week ago, markets had priced in a 50% chance the Fed would implement the deeper cut.
Sentiment levels out
After two weeks of whipsaw action in markets, the S&P 500 is now back near record highs. Technology stocks have ripped off the most recent market bottom and have been leading the market higher over the past few sessions. Fed cuts are on the horizon, and strategists feel generally OK about the overall path of the US economy.
Put together, midway through August, the market appears to be right back where it entered the month. But after the worst sell-off of 2024, some strategists argue things feel a little bit different now.
"With the market pullback, especially the more aggressive pullback on the growth side of the market, sentiment looks much more balanced now than it did heading into this month," Citi US equity strategy director Drew Pettit told Yahoo Finance.
Pettit's team uses an indicator called the Levkovich 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 signals markets have entered euphoria, or an overstretched peak. As seen in the graph below, prior periods where the market extends into euphoric territory are often followed by drawdowns.
This helps contribute to the Citi equity strategy team's reasoning that stocks have room to run higher this year. Citi projects the S&P will end the year at 5,800. And given that growth areas of the market like tech are where the recent pullback hit the hardest, Pettit said growth stocks are "looking incrementally more attractive here."
Weekly calendar
Monday
Economic data: Leading Index, July (-0.3% expected, -0.2% prior)
Earnings: Estee Lauder (EL), Palo Alto Network (PANW)
Tuesday
Economic data: Philadelphia Fed Non-Manufacturing Activity, August (-19.1 prior)
Earnings: Lowe's (LOW), XPeng (XPEV), Toll Brothers (TOL)
Wednesday
Economic data: MBA mortgage applications, week ending Aug. 16, (+16.8% prior); FOMC meeting minutes, July
Earnings: Macy's (M), Target (TGT), TJX (TJX), Snowflake (SNOW), Synopsys (SNPS), Urban Outfitters (URBN), Zoom (ZM)
Thursday
Economic data: Initial jobless claims, week ending Aug. 17 (227,00 previously); S&P Global US manufacturing PMI, August preliminary (49.6 prior); S&P Global US services PMI, August preliminary (55 prior); S&P Global US composite PMI, August preliminary (54.3 prior); Existing home sales, month-over-month, July (+0.3% expected, -5.4% prior)
Earnings: Advance AutoParts (AAP), BJs (BJ), Cava (CAVA), Intuit (INTU), Peloton (PTON), Red Robin (RRGB), Ross Stores (ROST), Viking Therapeutics (VKTX), Workday (WDAY)
Friday
Economic data: New home sales month-over-month, July (+2.6% expected, -0.6% prior); Kansas City Fed services activity, August (-4 prior)
Earnings: No notable earnings.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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