Top 5 things to watch in markets in the week ahead

After a holiday-shortened week, investors will closely watch the upcoming inflation report, which is the key highlight of the upcoming week. Last week, the labor market showed fresh signs of moderation. 

June's nonfarm payroll figures showed an increase of 206,000 jobs, a slight decrease from May's revised count of 218,000. Moreover, the U.S. unemployment rate experienced a slight uptick, moving from 4% to 4.1%, which surpasses the Federal Reserve's projection of a 4% rate for the current year.

Inflationary pressures, which have been a concern for both markets and policymakers, may also be showing signs of easing. The ISM's prices paid index, which can foreshadow the inflation trends for goods and services, reported lower-than-expected figures, aligning with the lowest rates since the pandemic's end.

Furthermore, the annual wage gains from the nonfarm jobs report were at 3.9%, a decrease from May's 4.1% and one of the lowest since the pandemic.

“In our view, if inflation continues to moderate and the economy softens but does not fall into a downturn or recession, markets should continue to perform well. It implies the Fed will likely begin its interest rate-cutting cycle, even as the economy is growing near trend levels,” Edward Jones strategists said in a note. 

“If the economy falters and the Fed must cut rates to support growth, markets will likely not hold up as well – but we don’t see signs of this. Keep in mind that the economy and labor market started from a position of outsized strength that may now be gradually normalizing.”

Here’s your look at what's happening in markets for the week ahead.

1. President Biden

President Joe Biden faced increased skepticism from within his own party regarding his potential 2024 reelection campaign. The concerns were not alleviated following his recent interview with ABC News, which was anticipated to address these issues. 

Adding to the Democratic unease, two additional lawmakers, Rep. Mike Quigley from Illinois and Rep. Angie Craig from Minnesota, publicly urged Biden to reconsider his intention to run for president again.

The calls from Quigley and Craig for Biden to step aside come as a notable development considering their status as members of his party. Their statements contribute to a larger sentiment of doubt that has been slowly surfacing among Democratic lawmakers, strategists, and donors. 

The increasing voices of dissent within the Democratic Party suggest a search for alternative strategies or candidates that could strengthen their chances in the forthcoming electoral contest. 

“It is hard for us to see how this uncertainty can drag out for more than another few weeks,” TD Cowen strategists wrote.

2. Powell’s speech

Federal Reserve Chair Jerome Powell is set to testify Tuesday and Wednesday before the Senate and House, respectively. While the hearings are mainly focused on monetary policy, TD Cowen analysts also said they expect to see some questions regarding many regulatory questions.

“We expect many questions on Basel 3 Endgame, long-term debt for regional banks and liquidity requirement changes,” the strategists said.

“Our expectation is that Powell will use those questions to set expectations for the Basel 3 Endgame capital proposal, the regional bank long-term debt proposal and the expected proposal on bank liquidity changes.”

3. CPI

The inflation report for June is set to be presented on Thursday, Jule 11. The Street expectations call for a 0.1% MoM and 3.1% YoY change. The core CPI is expected to increase by 0.2%.

Bank of America (NYSE:BAC) is aligned with the Street on both headline and core figures; however, it expects the YoY change to come in at 3.2%.

“Should the CPI report print in line with our expectations, we would maintain our expectation for the Fed to start its cutting cycle in December,” Bank of America economists wrote.

“That said, we do acknowledge that another 0.2% m/m print for Core CPI would tilt the risk towards an earlier cut especially given signs of softening activity.”

4. Q2 earnings season

As the early reports of the Q2 earnings season begin to emerge, indications point to a robust performance for S&P 500 companies. Projections for the second quarter of 2024 suggest earnings increase of 8.6% compared to the same period in the previous year, with revenues also expected to rise by 4.7%. This anticipated growth rate is the most significant since the 9.9% uptick observed in the first quarter of 2022.

The positive revisions trend leading up to this earnings cycle has set the stage for what appears to be a period of continued corporate resilience and an improving financial outlook. The forecasted earnings growth for the S&P 500 not only reflects a solid recovery but also marks a potential shift in momentum for the market. 

As always, the Q2 earnings season is officially underway on Friday, when JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and Citigroup are scheduled to report. 

5. Other economic data

In addition to the much-anticipated CPI report, investors will also focus on weekly jobless claims, as well as on the U.S. Producer Price Index (PPI) report. These two are due on Thursday and Friday, respectively.