Fed Meeting and Retail Sales Statistics Welcome the Stock Market’s Turbulence
Investor confidence has been rocked by worries about slowing economic growth and the potential effects of tariffs, which has caused the market to drop close to a six-month low.
Last week, the Dow Jones plummeted 3%, while the S&P (^GSPC) sank around 2.3%. There was a 2.4% decline in the tech-heavy Nasdaq Composite (^IXIC). As the benchmark index dropped 10% from its record high on February 19, the S&P 500 formally started a correction on Thursday.
Investors will continue to focus on the US economy and the Federal Reserve in the next week. When the central bank makes its following monetary policy announcement on Wednesday, it is mainly anticipated to keep interest rates unchanged. Any hints about when the central bank could lower rates again will be the markets’ attention.
The weekly calendar of planned economic data releases is expected to be highlighted by Monday’s publication of February retail sales. On the business front, we’ll be watching (NKE) and (FDX) quarterly earnings after the bell on Thursday.
A Fed Patient:
Investors are pricing in approximately three interest rate cuts from the Fed in 2025 due to the current stock purchase and mounting market concerns about deteriorating economic indicators.
The Fed is generally anticipated to keep interest rates steady on Wednesday, given that inflation is still well above the Fed’s 2% objective and that the effects of the Trump administration’s tariffs and other measures might accelerate price increases much more.
The Fed’s most recent Summary of Economic Projections (SEP) will be essential to monitor. This includes Fed Chair Jerome Powell’s remarks during his press conference and its “dot plot,” which shows officials’ projections for the future direction of interest rates.
The Fed’s median prediction when it last released its dot plot in December was that the Fed funds rate would finish 2025 between 3.75% and 4%, representing two 25 basis drops this year—one less than the market had anticipated.
Given the ongoing uncertainties surrounding fiscal policy, Morgan Stanley senior US economist Michael Gapen stated that he anticipated the Fed “communicates a heavy dose of patience.”
According to Gapen, Chair Powell is likely to sound cautiously optimistic about the economy while pointing to a hazy future due to the high level of policy uncertainty.
Consumer Report Card:
One of the initial pieces of information that triggered the market’s reversal of the US economy’s growth prognosis during the last month was the weakest retail sales report in a year.
Investors will have another chance to see if January’s 0.9% drop in retail sales began a downturn in consumer spending on Monday morning. Retail sales are predicted by economists to increase by 0.6% in February, indicating a recovery in the data.
On Friday, Jay Bryson’s team of economists at Wells Fargo told customers that the January belt-tightening came after a comparatively strong holiday season in November and December, with sales revised even higher. Therefore, rather than reflecting a decline in consumer spending, the January retreat may be more indicative of the robust conclusion to the 2024 holiday shopping season.
Considering the recent decline in equities due to concerns about economic development, experts have pointed out that any indications of improved economic growth might act as a market stimulant. Conversely, any further souring may put additional strain on supplies.
David Kostin, the top US equities strategist at Goldman Sachs, wrote to clients, “The key market risk going forward is a major further deterioration in the economic outlook,” lowering their year-end S&P 500 estimate from 6,500 to 6,200. Significant purchasing in the so-called “Magnificent Seven” tech stocks was the main event of the market’s recent spectacular meltdown.
From their most recent 52-week highs, Nvidia (NVDA), Alphabet (GOOG, GOOGL), (AMZN), (META), Apple (AAPL), and Microsoft (MSFT) are all down around 20%. Tesla (TSLA), however, has dropped by about 50% from its peak in the last 12 months.
Nevertheless, the stocks’ combined market capitalization of around 30% of the S&P is not far from their mid-30% peak weighting in 2024. Furthermore, their orientation continues to be crucial to the market’s future direction, as seen by market activity.
“You need your Mag Seven to contribute, but you also need the broadening thesis to happen for the market to move higher from here,” Scott Chronert, an equities strategist at Citi US, told Yahoo Finance.
For the generation that has driven the S&P 500’s earnings improvements over the last several years, Chronert continued, the “structural growth component” is still in place. Brian Belski, chief investment strategist at BMO Capital Markets, agreed with Chronert that the group is crucial.
Belski said, “Maybe these tech stocks got ahead of their skis a little bit,” in an interview with Yahoo Finance. “But ultimately, these massive corporations set the course for the US stock market’s expansion. They won’t go away.
Monday:
Economic data: Retail sales month over month, February (+0.6% expected, -0.9% prior); retail sales control group month over month, February (+0.4% expected, -0.8% prior); NAHB Housing Market Index, March (42 expected, 42 prior); retail sales excluding auto and gas month over month, February (+0.5% expected, -0.5% prior).
Tuesday:
Economic data: Building permits month over month on February (-1.6% expected, -0.6% previous); import price index month over month on February (-0.1% expected, +0.3% prior); housing starts month over month on February (+0.8% expected, -9.8% prior).
Wednesday:
Economic data: FOMC’s unchanged interest rate decision
Thursday:
Economic data: Philadelphia Business Outlook, March (10.1 expected, 18.1 prior); leading index, February (-0.2% expected, -0.3% prior); existing home sales, February (-3.4% expected, -4.9% prior); first jobless claims, week ending March 15 (224,00 expected, 220,000 prior);
Profits: (NKE), (FDX), (LE), (LEN), (MU), Academy Sports and Outdoors (ASO), and Darden Restaurants (DRI)
Friday:
Economic data: No noteworthy releases of economic data were made.
Profits: (NIO), (CCL)
