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Investors are bracing themselves for a “pivotal” three days in American markets, as a barrage of economic events, corporate earnings and Donald Trump’s looming tariff deadline test Wall Street’s resolve.
US stocks have raced to a series of record highs in recent weeks, surging from their April lows in a rally fuelled by indications that the nation’s economy remains resilient despite the president’s trade war and optimism that artificial intelligence will fuel strong growth at America’s biggest companies.
But this week “could prove to be the most pivotal of the year”, said Mike O’Rourke at Jones Trading.
The data flurry will kick off on Wednesday morning with the release of second-quarter US GDP, followed hours later by a Federal Reserve decision. On Friday, the labour department will issue its July jobs report.
Corporate earnings season is also reaching its peak. Microsoft and Facebook parent Meta report earnings after Wednesday’s closing bell, followed by Apple and Amazon on Thursday. The four groups have a combined market value of more than $11tn, meaning their share prices have an outsized influence on Wall Street.
O’Rourke noted that any one of these economic or corporate events “has the potential to be market-moving in its own right”.
The news deluge will come as some analysts and investors have grown uneasy about the scale of gains in US equities, which has caused crucial measures of market valuations to swell.
The S&P 500, which is up 8.3 per cent this year, is trading at an elevated 22-times expected earnings over the next 12 months.
A series of benign growth and inflation readings since Trump’s “liberation day” tariff announcement in April had helped investors “move past the subject of tariffs”, said Charlie McElligott, a derivatives strategist at Nomura.
The US has also struck trade deals with several big partners, including the EU, Japan and UK, as well as a temporary truce with China.
That progress has prompted economists at Wall Street banks to reduce the odds of a potential recession, which had been ratcheted higher following liberation day on April 2.
GDP is expected to have expanded at a roughly 2.9 per cent annualised rate in the second quarter, according to an Atlanta Federal Reserve forecast, reflecting a fall in imports. A surge in imports related to stockpiling had pushed GDP lower in the first quarter.
The Fed is broadly expected to hold rates at a range of 4.25 per cent to 4.5 per cent at the conclusion of its two-day meeting on Wednesday despite Trump’s insistence that borrowing costs should be much lower.
Investors will be looking for signs that a schism on the Federal Open Market Committee between chair Jay Powell and others who want to assess the effects of the tariffs on inflation before cutting interest rates from restrictive levels and those who want to cut imminently is widening.
The report from the labour department, meanwhile, is expected to show that the US added 115,000 jobs in July, a slowdown from 147,000 the previous month, according to a FactSet poll. A surprise in either direction could prompt volatility across markets.
“An absolutely loaded [economic] data calendar” meant there was “tons of event-risk” at the end of the month, when traders rebalance their portfolios in a process that can stoke asset price volatility, Nomura’s McElligott said.
The risks are compounded by uncertainty over whether the Trump administration will impose its “reciprocal” tariffs on countries it has not yet made a trade deal with by the deadline of 12.01am Washington time on August 1.
Investors have broadly bet that Trump will avoid levies that cause too much market volatility or delay implementation of them until agreements can be reached.
However, Matt King, global markets strategist at Satori Insights, said: “Trump being Trump, tariff risks and associated uncertainty nevertheless remains.”
