Global turmoil, can the stock market catch a break this week? These heavyweight events may be the key

According to the Zhitong Finance and Economics APP, due to the soft July employment report causing concerns about the health of the U.S. economy, coupled with the underwhelming performance of large tech companies failing to ease investors' worries, Wall Street witnessed a stock market plunge in the busiest week of the summer.

Last week, the S&P 500 index fell by over 2.5%, while the Nasdaq Composite Index dropped by more than 3.7%. The decline in the Nasdaq index saw it fall over 10% from its recent high on July 10th by the closing bell. Meanwhile, the Dow Jones Industrial Average also dropped by around 2.5%.

Economic data for this week is relatively subdued, with service sector activity and weekly initial jobless claims expected to be the main focus for investors.

On the corporate front, Airbnb (ABNB.US), Super Micro Computer (SMCI.US), Disney (DIS.US), and Eli Lilly (LLY.US) will be releasing their latest quarterly earnings reports.

Significant Rate Cut?

In recent months, market opinions on when the Federal Reserve will cut interest rates have been fluctuating, but now it seems that the market has reached a consensus - the Fed will cut rates next month.

A series of weaker-than-expected economic data has now left investors wondering by how much the rate cut will be.

A string of weaker-than-expected economic data, especially the July employment report triggering a closely watched recession indicator, has sparked speculation in the market that the Fed's current policy rate may be too tight.

JPMorgan Chase's Chief U.S. Economist Michael Feroli wrote in a report to clients last Friday, "Even if the softness in labor market conditions begins to ease from here, the Fed seems at least 100 basis points off, and possibly more. Therefore, we now expect the Federal Open Market Committee (FOMC) to cut rates by 50 basis points at the September and November meetings, followed by 25 basis points at each subsequent meeting."

During a recent press conference, Fed Chair Powell refused to specify when the Fed plans to cut rates but noted that "September is definitely on the table."

This confirms the market's expectations at the start of the meeting that monetary easing will arrive at the end of summer. With the expectation of a rate cut in September by the Fed now fully priced in, the new market debate has shifted to how much the Fed will cut rates by and which data points will drive this change.

Feroli added that from a risk management perspective, there is a high likelihood of the Fed cutting rates before the September meeting.

However, he wrote, "Perhaps Powell does not want to add more noise to a summer that has already seen many events."

According to CME's FedWatch tool, as of the time of writing, the market expects a probability of over 70% for a 50 basis point rate cut by the Fed in September

This shift may make the comments of Federal Reserve officials to be released soon particularly noteworthy. Federal Reserve officials Harker, Daly, and Bostic plan to make public statements in the coming week.

Disney Becomes Market Focus

Disney, which will release its financial report on Wednesday morning local time, is the headline of this week's corporate quarterly reports. This is because as the company doubles down on expensive sports rights, attention remains focused on Bob Iger's turnaround strategy for this entertainment giant.

Recently, the NBA reached an 11-year, approximately $77 billion media rights agreement with new partners including tech giant Amazon (AMZN.US), Comcast (CMCSA.US) NBCUniversal, and Disney.

CFRA analyst Ken Leon wrote in a report, "We believe investors' focus will be on Disney+, as well as what progress management has made in driving technology, focusing on preventing customer churn, and enhancing user experience. Faster monetization in the direct-to-consumer segment will be a plus."

Leon added, "Sports rights and the high broadcast fees for the NBA are expected to be disclosed during the earnings conference call."

Overall Earnings of the S&P 500 Index

Despite the focus on changes in the macroeconomic situation last week, which put pressure on the market, the S&P 500 index quietly recorded the best quarterly earnings growth rate in nearly three years.

John Butters, Senior Earnings Analyst at FactSet, stated that 75% of the constituent companies in the S&P 500 index have already reported earnings, with profits expected to increase by 11.5% year-on-year.

This will mark the highest year-on-year profit growth rate reported by the index since the fourth quarter of 2021.

Looking ahead, analysts have lowered earnings expectations for this quarter by 1.8% in the first month of the third quarter, consistent with the average downward revision over the past 20 years.