Stocks edged higher on Friday as the market extended its impressive recovery following Monday's sharp sell-off. The S&P 500 finished the week close to erasing its earlier losses, demonstrating resilience after a volatile start.
The benchmark index climbed 0.47% to close at 5,344.16, while the Nasdaq Composite gained 0.51%, ending the day at 16,745.30. The Dow Jones Industrial Average (DJIA) saw a modest increase, rising 51 points, or 0.13%, to settle at 39,497.54.
For the week, the S&P 500 was down just 0.04%, having briefly turned positive during Friday's session before giving back some gains. Meanwhile, the Dow and Nasdaq ended the week lower by 0.6% and 0.18%, respectively.
Last week was the most turbulent of 2024 for the markets, with Monday's dramatic losses standing out.
The Dow plunged 1,000 points, and the S&P 500 dropped 3% in its worst day since 2022. The sell-off was triggered by disappointing U.S. payroll data from the prior week and concerns that the Federal Reserve had delayed its rate cuts for too long, coupled with hedge funds unwinding a widely used currency trade.
According to Goldman Sachs (NYSE:GS) strategists, upcoming data releases that shed light on the economic outlook will play a key role in determining whether the equity market continues to be driven by macroeconomic factors or shifts back to the micro-driven environment seen in the first half of 2024.
With investors closely watching for signs of a potential recession, labor market and consumer data will be especially important.
With the next jobs report not due until September 6th, strategists believe attention will be on jobless claims released every Thursday, along with retail sales, Walmart (NYSE:WMT)'s earnings next Thursday, and the labor-related aspects of the Fed's surveys later this month.
“If the data confirm our economists’ optimistic view, investors will likely pivot back to focusing on alpha opportunities rather than market betas,” strategists wrote.
Goldman Sachs predicts that initial jobless claims for the week ended Aug. 10 to be around 230,000, compared to the consensus projection of 236,000 and last week’s reading of 233,000.
Regarding retail sales, the Wall Street giant projects a 0.2% decline in the core rate for July, while the headline figure is expected to have increased by 0.1%.
This week will also bring the release of the consumer price index (CPI) data for July, with economists generally expecting the continuation of the disinflation trend observed in recent months.
This week’s earnings spotlight: Walmart, Home Depot , Alibaba
As mentioned earlier, Walmart’s upcoming earnings report will be among the closely watched developments in the coming days.
Retail earnings reports typically serve as key indicators of consumer spending, which drives a significant portion of the U.S. economy.
Analysts expect Walmart to report second-quarter earnings of 64 cents per share, reflecting a 14.3% year-over-year increase, on revenue of $168.5 billion, up 4.3% from the previous year.
Other important earnings reports set to come out this week are those from Home Depot Inc (NYSE:HD), Cisco Systems (NASDAQ:CSCO), Alibaba Group Holdings Ltd ADR (NYSE:BABA), and Applied Materials (NASDAQ:AMAT), among others.
What analysts are saying about US stocks
Bank of America (NYSE:BAC): “Following the BoJ put last week, technical de-grossing slowed. But the growth overhang still remains, with a big CPI hurdle this week to clear the path for the Fed. A soft CPI could provide a relief rally, but a hot CPI would be a major downside event, potentially bringing stagflation fears back to the market.
“Equities need the Fed at least until the next strong macro data. What’s missing is the Fed’s nod, restoring confidence that growth is ultimately going to be supported.”
Alpine Macro: “The violent equity correction does not change our baseline outlook. We remain bullish despite the emerging soft patch because the Fed has plenty of bullets at its disposal. What the Fed does with this room for maneuver is critical to the dynamics of the equity correction. Aggressive easing would reinforce a “buy the dips” investor mentality.”
Evercore ISI: “EVR ISI Strategy’s base case remains upside for the S&P 500 to 6,000 by the end of 2024, predicated on an economy that remains out of a “hard landing”, EPS growing, and stocks remaining supported by GenAI’s expanding scope. “Air pockets” are normal and corrections are buying opportunities for long term structural trends. Even amidst a Hard Landing recession the ongoing effects of the Pandemic stimulus could blunt its impact and support longer term outperformance as was seen in the decades following previous M2 spikes in the 1920s and 1950s.”
BTIG: “Last Monday generated some tactical buy signals, but we think the bulk of the bounce has likely run its course and would use strength towards 5400-5440 to lighten exposure. A final durable low is likely still ahead of us, in our view. We are hard pressed to find a 5%+ SPX drawdown that ended without seeing a breadth washout (less than 20% of components above the 20 DMA). It only got to 31% last week, so unless it's different this time, we should expect another leg lower to fully washout breadth.”
RBC (TSX:RY) Capital Markets: “We are optimistic that a short-term bottom was put in place, or came close to being put in place, on August 5th, when the S&P 500 closed down 8.5% from peak and important technical support levels held. But we remain on guard for choppy conditions to persist for a while longer and don’t rule out a growth scare if economic data releases continue to disappoint. For now, our 5,700 YE 2024 price target stands.”