Following the significant sale on Friday, the stock market seems to have entered a choppy phase, despite its historic performance. Investors are likely to respond to this week’s revelations in the upcoming days. There’s been an ongoing narrative surrounding AI that has propelled markets for several months, allowing Microsoft to become the second U.S. company to reach a $4 trillion valuation after impressive June results. However, rising tariffs have taken their toll, contributing to a noticeable weakening in the U.S. labor market over the past quarter. Mark Hackett, chief market strategist at National Finance, notes, “Symptoms of fatigue are emerging.” He adds that increases in valuations and overall poor performance during traditionally weak seasons could test investor confidence in the near future.
This past week turned out to be a challenging one for stocks. The Dow Jones industrial average dropped about 3%, while both the S&P 500 and Nasdaq composite indices fell over 2%. After keeping interest rates steady last week, the Federal Reserve appears to be on hold until September, when it will evaluate two additional months of inflation and labor market trends influenced by the increased tariffs.
Investors are carefully treading through what is usually a weak season for stocks. According to the Stock Trader’s Yearbook, August has historically been the poorest month for the Dow since 1988 and the second worst for the S&P 500 and Nasdaq composite. For instance, Wolfe’s survey highlighted average declines of 0.3% for the S&P 500 in August, followed by 0.7% in September since 1990. With few upcoming tariff decisions on next week’s agenda, investors are expected to closely monitor any rapid changes in tariffs along with other developments. Recently, Trump enacted an executive order revising “mutual” tariffs for several countries, imposing new rates between 10% and 41%, which will elevate effective tariff rates from 15% to 20% across the economy—though it’s still less than the previous 25% threshold set in a prior announcement.
The uncertainty in trade negotiations, particularly with China, remains a significant concern. Rare earth metals and magnets crucial for sectors from electric vehicles to data centers are among Beijing’s key negotiation tools. Charlie Ashley, Portfolio Manager at Catalyst Funds, mentioned, “We’ve been working hard to get the most out of our business.” The earnings season is still in full swing, with around 82% of the S&P 500 companies that reported so far exceeding expectations. As of August 1, the S&P 500 saw a revenue growth of 10.2% in the second quarter, double the expected 4.9% at the end of June, according to FactSet.
Next week, various S&P 500 companies are set to release their results, which may further illuminate AI trends and insights on consumer spending. Ashley is particularly interested in updates from Palantir Technologies and Advanced Micro Devices, as well as reports from major corporations like Walt Disney and Caterpillar.
Looking ahead, here’s a glance at some key dates and releases: on Monday, August 4, the final durability orders and factory orders for June will be reported. On Tuesday, investors will be watching S&P PMI Services data and other earnings, including those from News Corp. and Amgen. Wednesday will see reports from Costco Wholesale and Disney, with more economic indicators like jobless claims coming on Thursday, August 7. Finally, Friday, August 8, will wrap up the week with numerous earnings calls continuing.
