Volatility, Earnings and Other Key Things to Watch this Week

Last week was another wild week with earnings, the Fed, and price action in general. 

The Fed held rates at this meeting but indicated that cuts could be on the table in September. This was met positively by the market only to be sold off into the back half of the week with the S&P 500 ($SPX) (SPY) closing down over 2%.

Earnings were also mixed last week with many of the Magnificent Seven now having reported. 

This week is significantly quieter on both the news and earnings front, but context appears to be more important than ever. Markets are, at least in the short term, selling every bounce they have and this should be remembered when analyzing news and earnings this week. 

Here are 5 things to watch this week in the Market.

Earnings

Earnings this week are significantly slower compared to last week. There are still many big names reporting like Caterpillar (CAT) on Tuesday, Disney (DIS), CVS (CVS), and Shopify (SHOP) on Wednesday. Caterpillar can be a great indication of how the construction and mining sectors are doing given their involvement in heavy equipment. 

Disney and Shopify are both more retail-focused and can be a good indication of how strong or weak the consumer is. If one or both of these companies guide lower due to weakening spending it could be a sign that we are near a recession from a spending perspective. 

Services PMI

On the news front this week, the first up on Monday is the ISM services PMI.  This is an index of expansion or contraction in the services sector. This release often causes a lot of volatility when it's actually released, but often subsides by the time regular trading opens. 

Given last week's Fed news and the reaction to it, it is possible that if we come in weaker than expected we could see the market continue the sell-off from last week, if however we come in stronger than expected we could see the market relief rally from all of last week's selling.

Bond Auctions

There are several bond auctions next week, but the 10-year and 30-year, on Wednesday and Thursday respectively, could be of particular interest. These two assets are often used to calculate the Risk-Free Rate and are used by many banks as a safe haven for capital. Watching how strong or weak these auctions are could be telling about how larger players are viewing the risks in the US markets in the coming months. If either the high yield or bid-to-cover ratio indicates fear in the bond markets, we could see that spill over into the equities market.

Unemployment Claims

Last week Non-Farm came in significantly weaker than expected with the number of people holding multiple jobs up sharply. It's possible that this bleeds over into the other unemployment reports. If this week's report continues this trend and comes in higher than expected we could see the market react in a similar way to the Non-Farm payrolls last week by selling off. If it comes in better than expected we could see the market find a bid.

Geo-political Tensions

Sadly, geopolitics are back in the news cycle front and center with more problems in the Middle East. The US has deployed additional military capacity as things continue to heat up surrounding Israel, Hamas, and Iran. Additionally, the Ukrainian war is still requiring a large amount of US support and any of these could cause market turmoil with a single headline. These are impossible to predict but are something that all investors should be aware of.

Best of luck this week and don’t forget to check out my daily options article.