Investors are preparing for what could be described as a "critical week" for the US market, with a confluence of significant economic events, corporate earnings announcements, and the looming specter of potential tariffs from the Trump administration all poised to test Wall Street's resilience.
In recent weeks, US stocks have rebounded strongly from their April lows, reaching a series of new all-time highs. This surge has been fueled by two primary factors: firstly, the resilience demonstrated by the US economy despite the trade war initiated by Trump; and secondly, the market's optimism that artificial intelligence will drive strong growth for major US corporations.
However, Mike O'Rourke of Jones Trading cautions that this week "could be the most pivotal week of the year."
The barrage of data will begin to roll out starting Wednesday morning Eastern Time, with the release of the US second-quarter Gross Domestic Product (GDP) figure. Just hours later, the Federal Reserve will announce its interest rate decision. On Friday, the Labor Department will release the July jobs report.
This week also marks the climax of earnings season. Microsoft (MSFT) and Meta (META) are scheduled to report their results after the market close on Wednesday, followed by Apple (APPL) and Amazon (AMZN) on Thursday. These four companies collectively represent over $11 trillion in market capitalization, meaning their stock prices wield significant influence over Wall Street.
O'Rourke points out that any one of these economic or corporate events "could individually spark market volatility."
As this torrent of news arrives, some analysts and investors are already uneasy about the scale of the rally in US stocks. Market valuation metrics have climbed, with the S&P 500 index up 8.3% this year and currently trading at a forward 12-month price-to-earnings ratio of 22x.
Charlie McElligott, a derivatives strategist at Nomura, notes that a string of benign growth and inflation data has helped investors "put the tariff issue to bed" since Trump's April declaration.
It's worth noting that the US has also struck trade deals with several key partners, including the European Union, Japan, and the United Kingdom, as well as a temporary truce with China.
This progress has prompted economists at Wall Street investment banks to lower the probability of a recession. After the April 2nd "Liberation Day," recession probabilities had been significantly raised.
The Atlanta Federal Reserve is forecasting a roughly 2.9% annualized rate of GDP growth for the second quarter, primarily reflecting a decline in imports. A surge in imports related to corporate stockpiling in the first quarter had dragged down GDP.
Despite Trump's insistence that borrowing costs should be far lower, the Fed is widely expected to leave interest rates unchanged in a range of 4.25%-4.5% at the conclusion of its two-day meeting on Wednesday.
Investors will be watching to see if the divergence has widened within the Federal Open Market Committee (FOMC): Chairman Powell and others want to assess the impact of tariffs on inflation before cutting rates from restrictive levels; another faction wants to cut rates immediately.
Meanwhile, the Labor Department report is expected to show that the US added 115,000 jobs in July, down from 147,000 the prior month, according to a FactSet survey. Data that beats or misses expectations is likely to spark market volatility.
Nomura's McElligott notes that the "extremely dense run of (economic) data announcements" means the end of the month "has a ton of event risk" – as traders adjust their portfolios, a process that could exacerbate asset price swings.
Risk is compounded by another uncertainty: whether the Trump administration will impose reciprocal tariffs on countries that have not reached trade agreements by the 00:01 Washington time deadline on August 1.
Investors broadly anticipate that Trump will avoid imposing tariffs that could trigger excessive market volatility or postpone implementation until a deal is reached.
But Matt King, a global market strategist at Satori Insights, cautions that: "Trump is Trump, and the tariff risk and related uncertainty remain."
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