Stock markets have given back much of the gains made during the August rally with all three major indexes back near the same levels where they started the month.

Post-fed markets

Year-to-date, the S&P 500 is down nearly -15%, the Nasdaq is down more than -22%, and the Dow is down just over -11%. Stock bulls on Friday were on the retreat after Federal Reserve Chairman Jerome Powell stressed the central banks commitment to maintaining its policy tightening plan and made clear the Fed will continue to raise rates and its way too early in the game to consider or talk about any type of shift in monetary policy. The overall harsher tone of Powell’s delivery was taken by many on Wall Street as a sign that the Fed Chief is not interested in trying to calm investor fears, which many bears also take as further proof that the Fed is not concerned about wider potential fallout in the economy or the stock. market caused by its efforts to cool inflation.

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Keep in mind, bulls have largely been counting on inflation to be on its way out by the second half of 2022, which then allows them to believe the Fed will end its tightening campaign and turn to rate cuts by early 2023, partially on the assumption that a slowing economy would need a jumpstart as well as historical precedent.

Over the past 50 years, the average period of time between the last Fed rate hike in a cycle and the first rate cut has only been six months. The PCE Prices Index on Friday did show a a decline in the annual headline inflation rate to 6.3% in July, down from 6.8% in June.

Much of that had to do with falling gasoline prices, which dropped to about $4.27 per gallon in the last week of July after hitting an all-time high just above $5 in mid-June. Stripping out energy and food prices, the Core inflation rate actually edged up again in July, indicating higher prices are being felt across most areas of the economy, not just those being impacted by short-term hiccups.

Many also continue to warn that energy prices as well as food prices are only likely to head higher this winter as supplies of both remain tight due to ongoing war and weather headwinds. That likely means even more pressure on US consumers in the last part of the year, which the critical holiday season. This comes as Wall Street is also worried that the deflating housing market as 30-year mortgage rates are two-times where they were last year.

Bears argue that a struggling housing market along with a tumbling stock market could eventually create bigger cracks in consumer confidence and really put pressure on the economy.

This week, investors will be dissecting remarks from various Federal Reserve officials that are scheduled to speak, including Fed Vice Chair Lael Brainard today, Barkin and Williams tomorrow, and Mester and Bostic on Wednesday.

Data to watch

Economic data of note this week includes today’s Dallas Fed Manufacturing. S&P Case-Shiller homes prices and JOLT’s job openings tomorrow. ADP employment and EIA energy numbers are out on Wednesday. ISM manufacturing on Thursday. Monthly Employment report on Friday. Earnings I am watching this week include… Best Buy, CrowdStrike, ChargePoint, and Chewy on Tuesday. FiveBelow, Okta, and MongoDB report on Wednesday. Campbell-Soup, Broadcom, and Lululemon report on Thursday.

What Is Next For US Stock Market? 29.08.2022

Wishing you a great week!

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