Weekly Stock Market Update & SPY Analysis
The strength of last month’s recovery rally came into question as September kicked off, following renewed fears of an economic slowdown. Megatech stocks tumbled, causing the S&P 500 to post its worst week since March 2023.
The uncertainty around U.S. economic health has shifted away from company earnings and more toward the labor market. Elevated interest rates and tight monetary policy have impacted hiring and employment, pushing the U.S. unemployment rate to 4.2%, according to Friday’s report. Although it ticked down from last month’s 4.3%, the significant slowdown in hiring has unnerved investors.
Fortunately, the Fed is set to reduce the central interest rate later this month, but the question now is whether it will be by 25 basis points (BPS) or 50 BPS. Odds between the two choices have fluctuated as new economic reports have been released, and this week’s CPI and consumer credit data could be the deciding factor.
The Consumer Price Index (CPI) is expected to show one of its biggest month-over-month drops this week, with the reading anticipated to fall from last month’s 2.9% to 2.6%. This would bring inflation closer to the 2% target, which would be a significant accomplishment for the Fed. If the number comes in line with expectations, it could increase the likelihood of a 50 BPS cut, which markets would view positively.
Lastly, the consumer credit report is expected to rise sharply from last month’s reading of $8.9 billion to $12 billion. Last month’s figure came in below expectations, signaling economic weakness to the markets. The uptick in this month’s reading could be interpreted in both a positive and negative light—positively, as it may indicate a revival in consumer spending, but negatively, as it could add to the looming credit bubble.
All in all, we have a critical week ahead, but if the reports meet expectations, it could help restore investor confidence.