S&P 500 Plummets in Worst Week Since 2023 Banking Scare – What’s Next?
The S&P 500 just experienced its worst week since the 2023 regional banking scare, with a mixed August jobs report failing to spark investor interest. In a holiday-shortened trading week, the S&P 500 (^GSPC) dropped over 4%, the Nasdaq Composite (^IXIC) tumbled nearly 6%, and the Dow Jones Industrial Average (^DJI) fell almost 3%. The Nasdaq 100 also saw its worst weekly return since 2022, led by a significant decline in Nvidia stock (NVDA).
Looking ahead, investors are eagerly awaiting fresh inflation data to gauge the Federal Reserve’s potential interest rate cuts at its upcoming September meeting. Additionally, the release of the first consumer sentiment reading for September will provide further insights into market sentiment.
In corporate news, Apple’s annual iPhone event is set to kick off the week, with earnings results from Oracle (ORCL), Adobe (ADBE), and Kroger (KR) leading an otherwise quiet week in scheduled company announcements.
The August jobs report revealed that the US economy added 142,000 nonfarm payroll jobs, with the unemployment rate dropping to 4.2%. However, revisions to previous months’ reports showed fewer job additions than initially reported. This mixed report has left investors uncertain about the Federal Reserve’s potential interest rate cuts in September.
While the report did not provide a clear direction for the Fed, speeches from Federal Reserve officials seemed to lean towards a 25 basis point cut. Market expectations for a 50 basis point cut have decreased, with Goldman Sachs forecasting a 25 basis point cut in September but leaving room for larger cuts if the labor market deteriorates further.
Inflation remains a key factor in the Fed’s decision-making process, with the release of the August Consumer Price Index (CPI) expected to show a slight decrease in annual gains. A benign CPI report could bolster the case for a 50 basis point rate cut, while hotter-than-expected inflation data may lead to a consensus around a 25 basis point reduction.
Analysts have tempered their earnings expectations for the current quarter, marking a shift from the previous quarter when estimates were raised. While this trend is not alarming yet, it will be important to monitor as third-quarter earnings season approaches.
Overall, the upcoming week is packed with economic data releases and corporate earnings reports that will provide valuable insights into the market’s direction. Investors will be closely watching inflation data and corporate earnings to gauge the Federal Reserve’s next moves and market sentiment.