Inflation data, retail sales, Walmart earnings await a jumpy stock market: What to know this week

A volatile week of trading action on Wall Street saw the stock market finish the week just about where it left off last Friday.

Panic hit financial markets on Monday as the unwinding of the yen carry trade spiked volatility after investors rapidly moved to price in higher odds of a recession and further easing from the Federal Reserve following last week's July jobs report.

In the latter part of the week, markets course-corrected as new data on weekly unemployment benefits cooled fears that the US economy was rapidly spiraling toward a downturn.

The whipsaw action left stocks nearly flat on the week despite opening Monday sharply in the red. For the week, the S&P 500 ( ^GSPC ) was almost exactly unchanged, while the Nasdaq Composite ( ^IXIC ) fell less than 0.2%. The Dow Jones Industrial Average ( ^DJI ) fell about 0.6%. On Monday alone, both the S&P 500 and Nasdaq fell more than 3%.

The week ahead will give investors fresh fodder in the debate over how quickly and deeply the Federal Reserve should cut interest rates, with the July Consumer Price Index (CPI) and retail sales reports highlighting the economic calendar. Updates on consumer sentiment, weekly unemployment claims, and manufacturing production will also be in focus.

On the corporate side, earnings season continues to wind down, though the focus will remain on the consumer, with reports from Home Depot ( HD ), Walmart ( WMT ), and Alibaba ( BABA ) headlining an otherwise quiet week for quarterly results.

Fed bets run wild

After the July jobs report heightened fears the Fed may have held rates too high for too long, the hot debate on Wall Street shifted from when the Fed should start cutting to how much the central bank should slash interest rates.

From the discussion of an emergency inter-meeting cut to the market nearly fully pricing in a 100% chance of a 50 basis point cut in September, markets have been on a wild ride trying to assess what the next likely move will be from the central bank.

What the Fed rate decision means for bank accounts, CDs, loans, and credit cards

As of Friday afternoon, markets were pricing in a roughly 50% chance the Federal Reserve cuts interest rates by 50 basis points by the end of its September meeting, down from 75% a week prior, according to the CME's FedWatch Tool.

Still, some economists have been arguing that pricing is too aggressive.

"The combination of higher unemployment and lower inflation has further strengthened what was already a solid case for Fed easing, and we expect cumulative cuts of 200 [basis points] over the next 1-2 years," Goldman Sachs chief economist Jan Hatzius wrote in a note to clients on Aug. 7.

"However, we think market pricing is too aggressive in the near term, especially with respect to the probability of a 50bp cut at the September 17-18 FOMC meeting."

Inflation back in focus

The next test for the Fed debate will come on Wednesday, with the release of the July Consumer Price Index (CPI) offering investors the latest look at inflation.

Wall Street expects headline consumer prices, including the price of food and energy, to post an annual gain of 3%, unchanged from June's reading . Inflation is set to rise 0.2% on a month-over-month basis after declining 0.1% in June.

On a "core" basis, which strips out the food and energy prices, inflation is expected to have risen 3.2% year over year, a slowdown from the 3.3% increase seen in June. Monthly core price increases are expected to log a 0.2% increase compared to 0.1% in June.

"The July CPI report is likely to further the case that inflation is quieting down even if it has not yet returned all the way back to the Fed's target," Wells Fargo senior economist Sarah House wrote in a note to clients.

A reading on retail

A fresh reading on retail sales will also be closely tracked on Thursday as investors search for clues on whether the US economy — and importantly, the US consumer — is slowing.

Economists expect that retail sales rose 0.3% in July from the prior month. Excluding gas and autos, expectations are for a 0.2% increase, which would mark a deceleration from the 0.8% sales growth seen in June.

Bank of America's head of economics, Michael Gapen, highlighted in a note to clients last week that a soft retail sales print "may not excite markets, who remain conscious of downside risk." But given the large increase for retail sales in June, a weaker print still "leaves spending on track for a reasonably strong quarter."

"Overall, should the data [retail sales and inflation] come in as we expect, we look for the market to price in fewer cuts this year and reduce the likelihood of a large cut in September," Gapen wrote.

Stocks will want 'good' economic news

The latest data from FactSet senior earnings analyst John Butters shows S&P 500 companies are pacing for 10.8% year-over-year earnings growth, the highest annual growth rate since the fourth quarter of 2021.

Though, as Citi US equity strategist Scott Chronert wrote in a note to clients this week, "earnings have taken a bit of a backseat to the macro-driven price action in the last two weeks."

This was exemplified by stocks mounting their best one-day rally since 2022 last week, rising 2.3% as a typically benign weekly unemployment benefit data release helped ease concerns about the economy.

DataTrek co-founder Nicholas Colas wrote in a note Friday morning that a rally of this magnitude following a report like initial jobless claims said "more about the stock market's fragile state and nervousness about economic data than anything else."

This puts the upcoming week's data onslaught in particular focus.

And if markets move to price in fewer Fed cuts and bond yields rise following next week's data, that could be a positive catalyst for stocks given the market's shift to an environment where bad news is bad news and good news is good news.

"Not only is good news going to be good, I think good news is actually going to be very good, and bad news is going to be very bad," Piper Sandler chief investment strategist Michael Kantrowitz said in a video to clients on Friday.

"We're going to see a lot of good days, a lot of bad days, and a lot more market volatility than we've seen most of this year."

Weekly calendar

Monday

Economic data: New York Fed one-year inflation expectations, July (3.02% previously)

Earnings: Rumble ( RUM )

Tuesday

Economic data: NFIB Small Business Optimism, July (91.7 expected, 91.5 previously); Producer Price Index, month over month, July (+0.2% expected, +0.2% previously); PPI, year over year, July (+2.3% expected, 2.6% previously)

Earnings: Home Depot ( HD ), On Holdings ( ONON )

Wednesday

Economic data: Consumer Price Index, month-over-month, July (+0.2% expected, -0.1% previously); Core CPI, month over month, July (+0.2% expected, +0.1% previously); CPI, year over year, July (+3% expected, +3% previously); Core CPI, year over year, July (+3.2% expected, +3.3% previously); Real average hourly earnings, year over year, July (+0.8% previously); MBA Mortgage Applications, week ending Aug. 9 (+6.9%)

Earnings: Brinker International ( EAT ), Canoo ( GOEV ), Cisco ( CSCO ), Dole ( DOLE ), UBS ( UBS )

Thursday

Economic data: Initial jobless claims, week ending Aug. 10 (236,000 expected, 233,000 previously); Retail sales, month over month, July (+0.3% expected, +0% previously); Retail sales ex-auto and gas, July (+0.2% expected, +0.8% previously); Import prices, month over month, July (-0.1% expected, +0.0% previously); Export prices, month over month, July (+0.7% previously); Industrial production, month over month, July (-0.2% expected, +0.6% previously); NAHB housing market index, August (42 prior); Empire Manufacturing, August (-6 expected, -6.6 prior);

Earnings: Applied Materials ( AMAT ), Alibaba ( BABA ), JD.Com ( JD ), Deere & Company ( DE ), H&R Block ( HRB )

Friday

Economic data: University of Michigan consumer sentiment, August preliminary (66.1. expected, 66.4 previously); Building permits month over month, July (-0.9% expected, +3.4% previously); Housing starts month over month, July (-0.2% expected, +3% previously)

Earnings: No notable earnings.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer .