The Fed meets on Tues/Wed with investors expecting a 25 bps cut to the Fed Funds rate which could kick off a series of rate cuts over the following months. Given recent weak labor market data (JOLTS, ADP, NFP, Challenger) and flat-lining inflation, the Fed likely pivots its focus from inflation to employment - though how much of an impact a 25 bps rate cut, or additional in the months to come, will have on sluggish hiring trends remains to be seen.
A full slate of economic reports on tap that will largely speak to the impact of tariffs on prices in the US economy. Inflation expectations (Mon) have calmed to the 3% range the past few months after spiking to 3.6% in Mar/Apr, their highest level since late '23, as businesses have seen tariff levels less than originally anticipated.
Quite a busy week with significant economic releases including the ISM PMI reports and a batch of employment related data that should shed light on the job market after big downward revisions to NFP just a few weeks ago. Also, the Fed will release it Beige Book, its economic and labor market commentary on 12 metro regions, on Wed. US PMI's are expected to flatline with Manufacturing (Tues) holding beneath the 50.0 expansionary line while Services is expected to rebound to 50.7 from 50.1 in July.
A “challenging situation” according to Fed Powell referring to inflation risks from tariffs and a “curious balance” in the employment market that may warrant adjusting the Fed’s policy stance. That adjustment will bring further focus to Friday’s PCE report which is expected to flat line at 2.6% y/y, and decline a touch on a m/m basis to 0.2%, from prior 0.3%.
An interesting slate of earnings and economic reports are on tap that should provide insight into the health of the consumer given recent slight acceleration in inflation trends and concerns over weak-ish employment reports. Home improvement centers HD (Tues) and LOW (Wed) are unlikely to provide hopes for a resurgence in larger project spending by consumers while TOL (Tues) will speak to the new build housing market with homebuilder equities having caught a bid over the past few weeks given slight declines in the 30- year mortgage rate as well as hopes for further rate declines.
Small and mid-caps will take over on the earnings front as the SPX is largely complete and appears poised to post an 11.8% growth rate for the quarter (Factset), the 3rd consecutive quarter of SPX double digit y/y eps growth. This week we will hear from technology players such as LITE, COHR, CSCO and AMAT that will frame their growth prospects in the AI infrastructure space and how they are positioned competitively among the many companies targeting the high growth area.