From Caterpillar to Amgen, dozens of large companies report earnings in the coming week, but it may be big economic data, such as Friday's jobs report, that takes over as a major market catalyst.
Monthly employment reports are always important, but the next few may be even more so. Federal Reserve Chair Jerome Powell made it clear at his press briefing Wednesday that the Fed's September rate decision will depend on economic data.
Stocks rallied in the past week, helped by better-than-expected earnings reports and a view that the Federal Reserve may not be as aggressive as it forecast when it comes to interest rate hikes.
The major stock market indexes ended July with their best monthly performance of the year, and the S&P 500 and Dow scored their best months since November 2020. The Nasdaq's 12.3% gain was its best monthly performance since April 2020.
The S&P was up 4.3% for the week and 9.1% for the month of July. It is still down 13.3% for the year. The Nasdaq was up 4.7% for the week. The Dow was up nearly 3% for the week and 6.7% for the month.
"Earnings stink, but they're not as bad as they could have been," said Sam Stovall, chief investment strategist at CFRA. "The Fed raised rates the most aggressively since 1981, but that's good because the economy is slowing down, and that's good because the Fed might start tapering its tone."
Some of the biggest names in tech delivered earnings beats in the past week, and their stocks were higher, such as Apple, Microsoft and Amazon. There have also been some big misses and negative forecasts, like from Meta Platforms and Intel. Intel was down 8.6% Friday after its earnings miss and lowered forecast.
"Thus far the market has been able to digest it," said Art Hogan, chief investment strategist at National Securities. "A lot of this is better than feared. If that process continues, it's likely to help the market grind higher. The market seems to be sitting on this notion that we had priced in Armageddon and thus far, that has not been thrust upon us."
Hogan said many investors were caught underinvested or even short stocks during the July rally.
"That helps throw some gasoline on the fire," he said.
In the week ahead, there are 148 S&P 500 companies reporting earnings. Reports come from a diverse group of companies, such as health-care names Eli Lilly, Gilead Sciences and Amgen. There will also be reports from travel-related companies, such as Uber and Booking Holdings.
Stocks enter August riding the optimism of July, but since 1995, the S&P 500 has declined by an average 0.5% in the month, according to CFRA. August has also been the third most volatile month, and only three major S&P sectors over that time had averaged gains for the month: real estate, technology and utilities.
Tech's outperformance during the month does help the Nasdaq, and the Nasdaq 100 increased an average 0.9% in August, going back to 1995, according to CFRA.
"It's a month that could go either way because it has among the highest single monthly advances while at the same time among the deepest single monthly decline," said Stovall. For instance, the S&P 500 gained 11.6% in August 1992, and fell 14.6% in August 1998.
Stovall said the S&P 500 could be tested early in the week. The S&P ended the week at 4,130. "Around 4,150 is a very important resistance level," he said.
Recession?
Investors have been worried about the prospect that the Federal Reserve's tightening could push the economy into a recession.
However, Thursday's report that second-quarter gross domestic product declined by 0.9% was taken in stride, in part because the market has been betting the Fed will have to slow down its hiking. The economy has now contracted two quarters in a row, and it is considered to be in what some economists say is a "technical recession." But most say it is not yet a real recession because of labor market strength and other factors.
The markets are focused on the potential for a bigger slowdown — particularly the bond market. In the past week, the closely watched 10-year yield fell to 2.64% from 2.75% the week earlier. Yields fall when prices rise, and the 10-year note was lifted by buyers who were concerned about economic weakness.
The 10-year's yield is important since mortgage rates and other business and consumer loans are influenced by it.
"The top tier U.S. data is important for this recession narrative. One thing that kicked off recession talk was the ISM services data, so ISM is going to be important," said NatWest's John Briggs. Services ISM slowed less than expected in June, but a measure of employment within the report fell to a two-year low.
The Institute of Supply Management's manufacturing survey is released on Monday, and the ISM services report is due out Wednesday.
Traders have been betting in the futures market that the Fed will have to start cutting rates next year, but the Fed's forecast does not show that. The Fed raised its target fed funds rate by 0.75% of a percentage point Wednesday, the second hike in a row of that size. The next rate hike, expected in September, could be smaller.
Briggs said the market's recession worries may be overdone.
"The jobs report has to be not bad. Powell called the labor market extremely tight, so I just think the market went a little bit overboard here," said Briggs, "Now it just needs to be not terrible."
The July employment report Friday morning is expected to show the economy added 250,000 jobs, according to Dow Jones. That is down from 372,000 jobs added in June.
"If the jobs report is bad, to me it's not more good news. ... If the jobs report is bad, it's more information we're just begging this recession rather than finishing this recession," said David Bianco, chief investment officer, Americas at DWS.
Bianco said he expects the economy is heading for a recession but because of inflation, not the Fed's rate hikes.
The big issue for the stock market is tech and how it's doing since it dominates the market, Bianco said.
Tech stocks were slammed by rising interest rates, as the 10-year yield climbed earlier in the year. Investors pay up for growth and tech stocks because of the promise of future earnings.
"People say if the 10-year is done going up, how bad are the technology earnings going to be?" said Bianco. "I caution with the idea that tech will be damaged by recession and a strong dollar and this [would be] from spending on the consumer side and the business side of technology. It's not that valuations are cheap. ... This may be a shallow recession, but I'm not convinced it's going to be a short one."
Bianco said he likes utilities, health care and aerospace and defense. "For those that want to take a cyclical risk, I like the big banks," he said. He said the banks do not have the balance sheet issues they had in the financial crisis.
"The overnight rate is going to be the driver of their net interest margins, especially at the big banks," he said. "Banks are in a better position than they normally are in a recession."
Week ahead calendar
Monday
Earnings: Activision Blizzard, Devon Energy, Zoom Info, Rambus, Vornado, Genworth Financial, Avis Budget, Aflac, CF Industries, Mosaic, Simon Property Group, Check Point Software, Loews, Jacobs Engineering, Lattice Semiconductor, Sanmina, DaVita
9:45 a.m. S&P Global manufacturing PMI
10:00 a.m. ISM manufacturing
10:00 a.m. Construction spending
Tuesday
Earnings: Caterpillar, BP, Dupont, Gilead Sciences, Uber, JetBlue, Marathon Petroleum, KKR, Molson Coors Brewing, Eaton, Oatly, S&P Global, Illinois Tool Works, Cummins, Expeditors, Ferrari, Caesars Entertainment, Starbucks, Airbnb, Advanced Micro Devices, PayPal, Owens-Illinois, Assurant, Occidental Petroleum, Chesapeake Energy, Owens-Illinois, Coterra Energy, KKR, Marriott
Vehicle sales
10:00 a.m. Chicago Fed President Charles Evans speaks
10:00 a.m. Housing vacancies
10:00 a.m. JOLTS
6:45 p.m. St. Louis Fed President James Bullard speaks
Wednesday
Earnings: Booking Holdings, eBay, CVS Health, Moderna, Dana, Scotts Miracle-Gro, Regeneron, Under Armour, Exelon, Yum Brands, Robinhood, Clorox, MGM Resorts, Allstate, Marathon Oil, Ethan Allen, Brink's, Sprouts Farmers Market, GoDaddy, Tupperware, New York Times, Lucid Group, Hostess Brands, iRobot, Valvoline, APA, Iamgold, Host Hotels, Copa Holdings, Nabors Industries, Kyndryl, Rent-A-Center
9:45 a.m. S&P Global services PMI
10:00 a.m. ISM Services
10:00 a.m. Factory orders
Thursday
Earnings: Eli Lilly, Amgen, Alibaba, Cigna, Air Products, Kellogg, Dropbox, Expedia, Ball Corp., Becton Dickinson, Edgewell Personal Care, Iron Mountain, Restaurant Brands, SeaWorld, Thomson Reuters, Gannett, ConocoPhillips, Intercontinental Exchange, Paramount Global, Shake Shack, Block, DoorDash, TripAdvisor, Lyft, Cushman and Wakefield, Nu Skin, Rocket Companies, Virgin Galactic, WW International, Zillow, Datadog, Zoetis, Duke Energy, Wayfair, Motorola Solutions, Twilio, Synaptics, AMC Entertainment, Skyworks Solutions, XPO Logistics, Suncor Energy, Carvana, Beyond Meat, Johnson Controls, Crocs
8:30 a.m. Initial jobless claims
8:30 a.m. International trade
12:00 p.m. Cleveland Fed President Loretta Mester speaks
Friday
Earnings: Allianz, WPP, Canopy Growth, Cinemark, AMC Networks, DraftKings, Fluor, Western Digital, Liberty Broadband, Fluor, Gogo
8:30 a.m. Employment report
3:00 p.m. Consumer credit report
Saturday
Earnings: Berkshire Hathaway
