Economic Vulnerability Leads to Fed Rate Reduction Amidst Approaching IPOs and Inflation Figures
The stock market is gearing up for a busy week, with several initial public offerings (IPOs), earnings reports, and inflation data on the horizon.
One of the most anticipated IPOs is that of buy-now-pay-later firm Klarna, which is expected to begin trading on the New York Stock Exchange on Wednesday. The company, which allows customers to purchase items and pay for them over time, has been growing rapidly in recent years and is now preparing for its public debut.
In addition to Klarna, six other IPOs are scheduled for this week, including crypto currency exchange Gemini Space Station, backed by the Winklevoss twins.
As for earnings reports, Oracle and GameStop are among the companies set to release their results this week. Oracle will report earnings on Tuesday after the close, while GameStop's earnings are expected later in the week.
The economic data for the week includes inflation numbers, which will be closely watched by investors. If the data shows a slower pace of inflation, it could increase the chances of the Federal Reserve cutting interest rates.
According to the CME Fed Watch Tool, the chances of a half-point rate cut are currently 12%, but markets are now pricing in a quarter-point cut at each of the Fed's three remaining meetings this year. The decision for a September rate cut by the Federal Reserve is all but solidified, with many economists forecasting a downward revision of 800-thousand jobs in March alone in the full-year revision.
The slowdown in hiring is strengthening the case for imminent Fed rate cuts, as the job market continues to show signs of weakness. Last week's job market report showed anemic growth and downward revisions for June and July.
If a quarter-point cut occurs, interest rates would be 3.5% heading into 2026. This would be a significant drop from the current levels and could provide a boost to the economy.
Despite the potential for rate cuts, the stock market ended the week on a positive note, with the S&P 500 posting gains of 0.3%. Technology stocks led gains in the stock market last week, with the Nasdaq Composite increasing by over 1%.
However, volatility may increase in anticipation of the triple-witching event, which is scheduled for mid-week. This event, which occurs four times a year, marks the expiration of options and futures contracts for individual stocks, indexes, and exchange-traded funds. This can lead to increased trading activity and potentially higher volatility in the market.
We are just under two weeks away from September expiration, which is another potential source of volatility. As always, investors should be prepared for market fluctuations and make informed decisions based on the latest economic data and company earnings reports.
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