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Last week was a good week for the stock market. In fact, with a 3.9% gain, it was the best week of the year for the S&P 500.
It was a welcome turn of events to be sure that turned in large part on the idea that the U.S. economy will achieve a soft landing, that inflation is being reined in, and that the Fed will announce a rate cut at its September FOMC meeting as a result of that.
This week the market will get a lot closer to understanding exactly what may transpire at that September FOMC meeting. Helping in that regard will be the BLS's release of benchmark revisions to nonfarm payrolls for the April 2023-March 2024 period, the release of the FOMC Minutes for the July 30-31 FOMC meeting, also on Wednesday, and Fed Chair Powell's speech on the Economic Outlook at the Jackson Hole Economic Symposium on Friday.
Not to be overlooked are the weekly initial jobless claims numbers and July existing home sales, which will be out Thursday, and July new home sales on Friday. Additionally, this week will feature earnings reports from Lowe's (LOW), Target (TGT), Macy's (M), and TJX Cos. (TJX), as well as Palo Alto Networks (PANW), Toll Brothers (TOL), and Zoom Video (ZM).
It would be remiss not to mention that the Democratic National Convention kicks off today in Chicago and will run throughout the week. Undoubtedly, there will be a lot of attention on Vice President Harris's economic proposals.
At the moment, there isn't a lot of attention being paid to the equity futures market by either buyers or sellers.
The S&P 500 futures are up four points and are trading fractionally above fair value, the Nasdaq 100 futures are up 14 points and are trading fractionally above fair value, and the Dow Jones Industrial Average futures are up 12 points and are trading fractionally above fair value.
Although buyers aren't showing much conviction, the bigger takeaway at this juncture is that sellers aren't either even though the yen is exhibiting renewed strength against the dollar and Estee Lauder (EL) disappointed with its fiscal Q1 and FY25 guidance.
The resilience underscores the market's hopeful view about the Fed cutting rates, not because the economy is collapsing but because inflation is moving sustainably back toward the Fed's 2% goal.
That is at least what the market hopes to hear Fed Chair Powell suggest in his speech on Friday. There are no guarantees, yet Fed officials have been paying more lip service to the idea of the Fed getting to the point of discussing a rate cut. Over the weekend, San Francisco Fed President Daly (FOMC voter) said the Fed should gradually reduce rates, according to FT, and Minneapolis Fed President Kashkari (non-FOMC voter) said a weaker employment market could trigger a Fed rate cut, according to The Wall Street Journal.
This is important insight, but from the market's vantage point, it is Fed Chair Powell's view that will resonate as the leading indicator for monetary policy.
