Some analysts are expecting a stock market correction in a seasonally weak time of year, while markets await developments on trade and Fed policy that are not expected until September.
This has created an information vacuum for markets, including the void left as corporate earnings season winds down.
Just about 60 S&P 500 companies report in the coming week, including media names like Disney, News Corp. and Viacom.
With new risks from trade wars, stocks head into the final weeks of summer vulnerable to a pull back or even correction.
The market was down sharply in the past week, buffeted first by disappointment over the Fed’s more hawkish-than-expected policy outlook. Then they were beaten down by fears President Donald Trump is starting a new front in the trade wars with China that is unlikely to end any time soon.
“The real issue as to why there’s going to be a correction in our view is there’s a massive, massive vacuum here,” said Julian Emanuel, head of equity and derivative strategy at BTIG. “In essence, it’s a month and a half of a vacuum, if you think about the direction of the rhetoric. … The issues are China, the issues are the Fed and the issues are Brexit. In the first tow, you’re almost not going to hear anything.”
Trump, in threatening new tariffs on $300 billion in Chinese goods on Thursday, said the tariffs would go into effect on Sept. 1 unless China acts, but no new talks are expected before September. Economists said if the tariffs are put in place, the risks of a U.S. recession rise, particularly if businesses step back from investment, and possibly even hiring. But that could also prompt the Fed to cut interest rates to rescue the economy when it meets in September.
After a deluge of corporate headlines in the past several weeks, the earnings season is also winding down with just about 60 major companies reporting in the week ahead, and there are no really significant economic reports until the middle of the month.
Emanuel said the S&P 500 could see a decline to about 2,789, though he still expects to see 3,000 at the end of the year. Stocks started the past week near all-time highs, and the S&P 500 was was down more than 3% in the past week, but still up about 17% for the year-to-date. Odds are high that stocks pull back in August, since for the past eight years, the S&P 500 was negative during August in six of them.
Emanuel said if stocks decline too much or too long, he expects to see some action from the White House that will halt the selling.
“If you’re the president, there’s no way you’re going to allow an economic slowdown in an election year,” said Emanuel.