After a hawkish outlook from the Federal Reserve sent stocks tumbling last week, the news onslaught is expected to continue in the week ahead.
The Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation indicator, out Friday morning will be the week's biggest economic data release. Tuesday and Friday will bring consumer sentiment checks from the Conference Board and the University of Michigan, respectively, while housing data and an update on quarterly economic growth also dot the schedule.
Elsewhere in corporate news, two labor disputes are ongoing as the United Auto Workers (UAW) strike enters its third week without a deal, and talks have heated up between Writers Guild of America (WGA) and the Alliance of Motion Picture and Television Producers (AMPTP) amid a four-month-long work stoppage.
Stocks enter the week looking to bounce back from another down week. Last Wednesday featured the Fed's persistence on a "higher for longer" strategy with interest rates spawned a sell-off. Over the last five trading sessions, the S&P 500 (^GSPC) slipped nearly 3% while the Nasdaq Composite (^IXIC) fell more than 3.5%. Meanwhile, the Dow Jones Industrial Average (DJI^) dropped almost 2%.
After the Federal Reserve opted to hold interest rates steady in a range of 5.25% to 5.5%, Fed Chair Jerome Powell noted in a press conference that inflation remains "well above the longer-run goal of 2%."
The Summary of Economic Projections showed inflation ending 2023 lower than officials had previously thought, however. The SEP indicated the Federal Reserve sees core inflation finishing at 3.7% this year — lower than June's projection of 3.9% — before cooling to 2.6% next year and 2.3% in 2025.
Those projections will be put to the test once again this week. Data on Friday is expected to show "core" PCE — which strips out the costs of food and energy — rose 3.9% over the prior year in August, down from a 4.2% increase in July. The Fed targets 2% inflation, on average. Over the prior month, "core" PCE is expected to rise 0.2% in August, unchanged from July.
Wells Fargo's economics team agrees with the consensus projection for 0.2% month-over-month growth but believes the mounting headwinds facing the consumer could eventually force an economic slowdown.
"If our forecasts are correct, real personal consumption expenditures will continue a 12-month streak of growth," Wells Fargo's team of economists wrote in a research note on Friday. "That said, the loosening labor market, less marked improvement in inflation and resumption of student loan payments are headwinds to real PCE in the coming months. Consumer confidence, which we forecast declined to 105.7 in August [from 106.1 in July], should give an early read next week as to how consumers are faring in this kind of environment."
Data for new home sales and the S&P CoreLogic Case-Shiller US National Home Price index are expected on Tuesday. Economists project new home sales fell 2.2% month over month.
As the data comes in, expect Wall Street to discuss if another rate hike, which the Fed projected on Wednesday, will be needed. As of Friday, investors aren't betting on it, as futures markets have just a 37% percent chance a rate hike happens by the end of the December meeting, per the CME FedWatch Tool.
"Even with the more hawkish dots we’re still comfortable thinking that the hiking cycle is over," JPMorgan chief US economist Michael Feroli wrote in a note on Wednesday. "We would be getting more concerned about the Committee walking into the policy mistake of overtightening if it weren’t for the fact that the more influential members are likely less hawkish than the median dot."
On Friday, the UAW intensified the stoppages, expanding the strikes to 38 more locations across 20 states. Thus far, auto stocks have had mixed reactions with GM the biggest loser, falling roughly 4% over the past week.
Ford's stock rallied on Friday as UAW president Shawn Fain noted the union had made “real progress” with Ford over the past week.
“The UAW strike is about to get a lot nastier which could have a massive impact on GM's EV plans as well as billions of lost revenue/production depending how long this UAW debacle lasts,” Wedbush Securities managing director Dan Ives wrote after the UAW press briefing on Friday.
Meanwhile, an earnings report from Nike could also have implications across multiple companies in the retail sector. Wall Street analysts project Nike’s earnings per share to decrease about 20% from the same period a year prior to $0.75 while revenues are expected to top $13 billion, a 2.5% increase from a year ago, per data complied by Bloomberg.
When the retail giant reports Thursday after the bell, investors will be keenly focused not only on what Nike says about itself and the state of the consumer but also other key areas of retail. Nike will provide a look at a continued consumer slowdown in China, the health of the wholesale market, which some have said is under pressure, and perhaps an update on retail crime.
“Global business trends have likely been slightly worse than expected, but this is probably already priced into the stock and contemplated in the lower-end of Nike's FY24 guidance range,” UBS analyst Jay Sole wrote in a note to clients previewing the earnings announcement. “We believe the 'bar' for the event is a 1Q EPS beat, offset by a below-consensus Q2 guide, with Nike's FY24 outlook remaining unchanged. Our view is Nike will meet this bar.”
The week ahead will also bring another potential macro challenge into center stage as a government shutdown looms on Oct. 1.
But even if a shutdown comes, it will not "sink" the economy, Oxford Economics wrote in a note on Friday.
"The chances of a government shutdown this fall are more likely than not, but we think it will have only a slight impact on output – around 0.2 [percentage points] of annualized GDP per week – with half of that impact being reversed," Nancy Vanden Houten, Oxford Economics' lead US economist, wrote. "Overall, it is unlikely to have a material impact on Q4 GDP, but it does come at a time when we think the economy will be shrinking."
From a stock perspective, the shutdown could likely bring choppiness, Truist co-chief investment officer Keith Lerner told clients in a note earlier this week. But that doesn't mean it will bring doom.
"Government shutdowns tend to be high profile though low-impact market events," Lerner wrote. "While uncertainty around these events tends to heighten investor angst and add to short-term market volatility, the historical evidence suggests a minimal lasting market impact."
Economic data: Dallas Fed Manufacturing Activity, September (-13 expected, -17.2 previously)
Earnings: No notable earnings.
Economic data: New home sales, August (699,000 annualized rate expected, 714,000 previously); New home sales, month-over-month, August (-2.2% expected, +4.4% previously); Conference Board Consumer Confidence, September (105.5 expected, 106.1 previously); S&P CoreLogic Case-Shiller, 20-City Composite home price index, month-over-month, July (+0.65% expected, +0.92% previously); S&P CoreLogic Case-Shiller 20-City Composite home price index, year-over-year, July (+0.03% expected, -1.17% previously)
Earnings: Costco (COST)
Economic data: MBA Mortgage Applications, week ending Sept. 22 (+5.4% prior); Durable goods, August (-0.5% expected, -5.2% previously)
Economic data: Second quarter GDP, third estimate (+2.2% annualized rate expected, +2.1% previously); Second quarter personal consumption, third estimate (+1.7% expected, 1.7% prior); Initial jobless claims, week ended Sept. 24 (215,000 expected, 201,000 previously); Pending home sales month-over-month, August (-1.0% expected, 0.9% previously)
Economic data: Wholesale inventories month-over-month, August (-0.2% expected, -0.2% previously); Retail inventories month-over-month, August (+0.5% expected, +0.3% previously) Personal income, month-over-month, August (+0.4% expected, +0.2% previously); Personal spending, month-over-month, August (+0.4% expected, +0.8% previously); PCE inflation, month-over-month, August (+0.5% expected, +0.2% previously); PCE inflation, year-over-year, August (+3.4% expected, +3.2% previously); "Core" PCE, month-over-month, August (+0.2% expected, +0.2% previously); "Core" PCE, year-over-year, August (+3.9% expected; +4.2% previously); University of Michigan consumer sentiment, August, final reading (67.7 expected, 67.7 previously)
Earnings: Carnival (CCL)
Josh Schafer is a reporter for Yahoo Finance.