Federal Reserve Focus: A Weekly Update on Economic Developments

Following a barrage of economic data releases that wrapped up August, investors can anticipate a quieter week ahead due to Labor Day and a reduced economic calendar. However, the upcoming Federal Reserve interest rate decision remains a key point of interest.

In observance of Labor Day, U.S. stock markets will be closed on Monday. Here's what to keep an eye on throughout the week:

Economic Data and Reports

Wednesday: This day is set to be the busiest for economic data, with morning service sector readings from S&P Global and the Institute for Supply Management, followed by the release of the Federal Reserve's Beige Book in the afternoon.

Thursday: Expectations are for the release of initial jobless claims data.

Friday: Wholesale inventories for July are on the reporting schedule.

Corporate Earnings

The week's corporate earnings reports feature several noteworthy companies, including:

Tuesday:

• Zscaler (ZS)

• GitLab (GTLB)

Wednesday:

• American Eagle Outfitters (AEO)

• ChargePoint (CHPT)

• C3.ai (AI)

• Dave & Buster's Entertainment (PLAY)

• GameStop (GME)

Thursday:

• DocuSign (DOCU)

• RH (RH)

• Zumiez (ZUMZ)

Friday:

• Kroger (KR)

• Rent the Runway (RENT)

Last week's critical August jobs report depicted a slowdown in the U.S. labor market. The economy added 187,000 new jobs, while the unemployment rate unexpectedly rose to 3.8%. These figures, combined with a decline in job openings and a downward revision of second-quarter GDP growth estimates, have led investors to believe that the Federal Reserve is unlikely to raise interest rates at its September 19-20 policy meeting.

Market sentiment echoes this belief, with data from the CME Group showing a 94% likelihood of the Fed maintaining its current stance this month, up from 80% the previous week. Bets on a rate hike in November have also decreased, falling to 34% from 47% the week before.

JPMorgan economist Michael Feroli pointed out, "The loosening up of labor market slack in [Friday's] report, combined with the friendly JOLTS report from earlier [last] week, should cement the case for a Fed on hold later this month." Ryan Sweet, Chief U.S. Economist at Oxford Economics, concurred, stating, "The August employment report gives the Fed plenty of room to leave policy steady through this year and into next."

While economic developments appear favorable for the Fed and investors, it's worth noting that September has historically been a challenging month for the S&P 500. However, the strong start in 2023 might defy historical trends, as the S&P 500 typically posts gains in September when it enters the month with a substantial year-to-date increase.

Fundstrat's Tom Lee expressed confidence, saying, "We believe consensus caution for September will prove to be unwarranted. In fact, we believe September probabilities favor a gain of 2% to 3%, supported by a downward shift in consensus views around inflation and inflation risks."

As we navigate this week's mix of economic data and corporate earnings reports, all eyes remain fixed on the Federal Reserve's upcoming decisions and their potential impact on the market.

Also Read: Hollywood Strikes and U.S. Job Losses: Impact on US Economy - August 2023 Report