Market Outlook: Dow Jones, Nasdaq, S&P 500 Await Powell’s Speech

Friday saw a surge in U.S. stocks, finishing the best week of 2024 as the market recovered from the severe decline saw earlier in August.

The Nasdaq Composite increased 0.21% to 17,631.72, while the S&P 500 gained 0.2% to 5,554.25. To conclude at 40,659.76, the Dow Jones Industrial Average also increased by 96 points, or 0.24%.

The S&P 500 saw a gain of around 3.9% for the week, which was its highest result since November 2023. The Dow gained 2.9%, while the Nasdaq gained 5.2%.

The S&P 500 has rallied over the past week to within 2% of its record high set in mid-July. Positive news calmed the market, including better-than-expected retail sales and a decline in weekly unemployment claims. Earlier in the week, inflation data reinforced hopes for a possible gentle landing, dispelling fears of a recession that had sparked a sell-off across the board earlier in the month.

The release of existing home sales data and unemployment claims on Thursday, as well as the publication of the minutes from the July FOMC meeting on Wednesday, will be the focal points of the markets this week.

Moreover, a number of Federal Reserve officials have speeches scheduled, including Chair Powell, President Bostic, and Governor Waller, who will give the keynote presentation at the Jackson Hole Economic Policy Symposium on Friday.

In a recent statement, analysts from Deutsche Bank stated, “With regard to Powell’s speech on Friday, the main focus will be his signals about the timing and pace of rate cuts over the coming months.”

“Our baseline view, which calls for three consecutive 25bps reduction at the upcoming meetings, is supported by strong arguments. There are, nevertheless, strong arguments in favor of accelerating. Ultimately, we believe that the Fed’s reliance on data may restrict the forward guidance Powell offers because it will be challenging to make a commitment to a certain trajectory in advance.

Separately, economists at Nomura stated that they do not expect Powell to specifically discuss the rate-cutting pace or the possibility of a bigger rate-cut in September of 50 basis points. They think he will probably admit that the Fed is prepared to move quickly in the event that the labor markets deteriorate.

However, Nomura’s analysts stated, “We anticipate his remarks to be more balanced than at the July press conference – noting upside inflation risks, as well.”

Nomura predicts Powell would highlight the Fed’s capacity to be patient and data-dependent, quietly undermining recent market expectations for a more aggressive start to the easing cycle given the recent strength in economic statistics and stability in financial markets.

Highlight on Earnings: Which Businesses Will Report This Week?

Although this week’s main focus will probably be on the Jackson Hole symposium, the Q2 earnings season is still in progress, with a number of eagerly awaited reports due to come out.

Palo Alto Networks (NASDAQ:PANW), XPeng (NYSE:XPEV), Snowflake (NYSE:SNOW), and Zoom Video Communications (NASDAQ:ZM) are among the companies with significant earnings this week. Additionally, software developer Intuit (NASDAQ:INTU) and Chinese internet and AI behemoth Baidu (NASDAQ:BIDU) will report.

Target Corporation (NYSE:TGT), Lowe’s (NYSE:LOW), Macy’s (NYSE:M), Ross Stores (NASDAQ:ROST), TJX Companies (NYSE:TJX), Estee Lauder Companies Inc (NYSE:EL), and Urban Outfitters (NASDAQ:URBN) are among the retailers that will be under scrutiny.

The opinions of analysts about US stocks

Citi: “As the Q2 reporting season comes to an end, our US equities narrative is mostly unaltered. 10% EPS increase at the index level indicates both breadth and the ensuing acceleration. This is noteworthy in and of itself considering the conflicting macro signals preceding the anticipated September Fed rate cut. However, despite minor indications of gradual deceleration elsewhere, index-level growth is still dependent on the mega-cap Tech cohort. Our $250 projection for the entire year 2024 is still in the ballpark, despite a slight negative risk. Consequently, we continue to aim for a 5600 S&P 500 year-end base case.

Bank of America: “The engine of growth is the driver.” Even while the Fed is unlikely to “out-dove” the market at Jackson Hole, stocks can tolerate a less dovish Fed as long as growth is healthy. All stocks need is a signal from the Fed that growth will be sustained. Even though we believe there may be upside risk, the amount might be limited before NVDA’s results report the following week. Our argument for a continuous rotation is still valid: 1) There is less pressure on rates; 2) The Fed will eventually boost GDP; and 3) Earnings are starting to spread.

Evercore ISI: “The consumer is supported and the possibility of Fed cuts into a Soft Landing is raised by strong earnings combined with expansionary PMIs, still-acceptable EVR ISI company surveys, and continuous real wage growth.” A situation like this tilts the trajectory of stocks higher. Additionally, it strengthens the case for increasing exposure to “AI Revolutionaries” in the midst of possible “Air Pockets,” which are common occurrences in structurally bull markets. A Soft Landing and more benevolent rate regime would also help small caps. According to the EVR ISI Strategy, the S&P 500 will close around 6,000 in 2024.

Goldman Sachs: A lot of investors aren’t completely understanding the strength of the second-quarter earnings season because of the overall macro environment. Compared to the long-term average of 46%, 56% of S&P 500 companies exceeded consensus EPS predictions by more than a standard deviation of estimates. We stick with our $256 (+6% growth) 2025 EPS projection, which is lower than both top-down and bottom-up consensus. Our projection of +4% increase in sales by 2025 is little less than the bottom-up consensus, while our estimate of 24 bps growth in margins to 11.7% is significantly less than the consensus. Although there is a chance that our margin estimate would increase due to micro dynamics like one-time charges and the Semis cycle, there are also macro risks that could go wrong.