What to know this week

The S&P 500 could retest its June low in the week ahead as equity markets endure a brutal bout of selling spurred by fears the Federal Reserve’s inflation fight may cause a recession.

A move by the US central bank to lift interest rates by 75 basis points for a third straight time on Wednesday while signaling more sizable hikes was likely to renewed worries among investors that a hard landing is coming — particularly as monetary policymakers around the globe followed suit in recent days.

“The chances of a soft landing are likely to diminish,” Fed Chair Jerome Powell said in a speech following the policy announcement. “No one knows whether this process will lead to a recession or, if so, how significant that recession would be. ”

US stocks plunged Friday, with the best averages logging losses in five of the six last weeks. The Dow Jones Industrial Average was down roughly 4% for the week, hitting a 2022 low after dipping into bear market territory during the session. The benchmark S&P 500 shed 4.6% over the same period, teetering near its June 16 low of 3,666.77. The highest average closed at 3,693.23 on Friday. And the technology-heavy Nasdaq Composite posted a weekly loss of roughly 5.1%.

Recessionary worries also extended beyond equities. The rate-sensitive 2-year Treasury note spiked above a fresh 15-year high of 4.2% on Friday, soon after the 10-year Treasury yield topped 3.7%, the highest since 2011. In currency markets, the US Dollar Index emerged to the highest since May 2002 and in commodities, oil prices plunged below $80 to an eight-month low.

Bank of America’s Mark Cabana likened current market conditions to those of March ’20, when the COVID-19 pandemic increased the global economy – but without a policy backstop.

“Central banks are not helping,” he said in a Friday note. “The market knows central banks will hike until something breaks.”

NEW YORK, NEW YORK - SEPTEMBER 23: People walk outside of the New York Stock Exchange (NYSE) on September 23, 2022 in New York City.  The Dow Jones Industrial Average has dropped more than 400 points as recession fears grow.  (Photo by Spencer Platt/Getty Images)

People walk outside of the New York Stock Exchange (NYSE) on September 23, 2022 in New York City. The Dow Jones Industrial Average has dropped more than 400 points as recession fears grow. (Photo by Spencer Platt/Getty Images)

Cabana added that the Fed “is hiking at the fastest pace in recent memory with maximum uncertainty on the macro outlook. To us, this seems like driving at 75 mph but not knowing which way the road will turn – an accident seems inevitable.”

Investors will have a hefty docket of economic releases to mull in the coming week, including the latest gauges on PCE inflation – the Federal Reserve’s preferred inflation measure – durable goods orders, new home sales, and consumer confidence. The third estimate of gross domestic product (GDP), the broadest measure of economic activity, is also due out.

Meanwhile, Wall Street is also buckling up for what is expected to be a challenging earnings season filled with economic warnings from companies and downward guidance revisions from companies.

“We’re of the view that 2023 earnings estimates have to continue to decline,” a note outlining a discussion between Baird’s Ross Mayfield and Ryan Grabinski said. “We have our 2023 recession odds at about 50% right now, and in a recession, earnings decline by an average of about 30%.”

NEW YORK, NEW YORK - SEPTEMBER 23: Traders work on the floor of the New York Stock Exchange (NYSE) on September 23, 2022 in New York City.  The Dow Jones Industrial Average has dropped more than 400 points as recession fears grow.  (Photo by Spencer Platt/Getty Images)

Traders work on the floor of the New York Stock Exchange (NYSE) on September 23, 2022 in New York City. (Photo by Spencer Platt/Getty Images)

“The consensus 2023 earnings estimate has only come down 3.3% from its June highs, and we think those estimates will be revised lower, especially if the odds of a 2023 recession increase from here.”

Of S&P 500 companies that held earnings calls from June 15 through Sept. 8, 240 cited the term “recession” – the highest number citing the term since at least 2010, and well above the five-year average of 52, according to data from FactSet research.

Several key earnings announcements are on top in the coming week, with headliners like Bed Bath & Beyond (BBBY), Nike (NKE), Micron Technology (MU), and Rite Aid (RAD) set to report.

Business Calendar

Monday: Chicago Fed National Activity IndexAugust (0.27 during previous month), Dallas Fed Manufacturing Activity IndexSeptember (-12.0 expected, -12.9 during previous month)

Tuesday: Durable goods ordersAugust preliminary (-0.1% expected, -0.1% during prior month), Durables excluding transportationAugust preliminary (0.3% expected, 0.2% during prior month), Non-defense capital goods orders excluding aircraftAugust preliminary (0.2% expected, 0.3% during prior month) Non-defense capital goods shipments excluding aircraftAugust preliminary (0.5% during prior month), FHFA Housing Pricing IndexJuly (0.1% expected, 0.1% during prior month), S&P CoreLogic Case-Shiller 20-City Compositemonth-over-month, July (0.20% expected, 0.44% during prior month), S&P CoreLogic Case-Shiller 20-City Compositee, year-over-year, July (16.90% expected, 18.65% during prior month), S&P CoreLogic Case-Shiller US National Home Price Index (17.96 during previous month), Conference Board Consumer ConfidenceSeptember (104.3 expected, 103.2 during previous month), Conference Board Present SituationSeptember (145.4 during previous month), Conference Board ExpectationsSeptember (75.1 during previous month), Richmond Fed Manufacturing IndexSeptember (-11 expected, -8 during previous month), New Home SalesAugust (500,000 expected, 511,000 during previous month), New Home Salesmonth-over-month, August (-2.2% expected, -12.6% during prior month)

Wednesday: MBA Mortgage Applications, week endedSep. 23 (3.8% during prior week),Advance Goods Trade BalanceAugust (-$88.5 billion expected, -$89.1 billion during prior month, revised to -$90.2 billion), Wholesale Inventoriesmonth-over-month, August preliminary (0.5% expected, 0.6% during previous month), Retail Inventoriesmonth-over-month, August (1.1% during prior month), Pending Home Salesmonth-over-month, August (-0.8% expected, -1.0% during prior month), Pending Home Sales NSAyear-over-year, August (-22.5% during previous month)

Thursday: Initial Jobless Claims, week endedSep. 24 (220,000 expected, 213,000 during previous week), Continuing Claims, week endedSep. 17 (1.379 million during previous week), GDP Annualizedquarter-over-quarter, 2Q third (-0.6% expected, -0.6% prior), personal consumptionquarter-over-quarter, 2Q third (1.5% expected, 1.5% prior), GDP Price Indexquarter-over-quarter, 2Q third (8.9% expected, 8.9% prior), Core PCEquarter-over-quarter, 2Q third (4.4% expected, 4.4% prior)

Friday: personal incomemonth-over-month, August (0.3% expected, 0.2% during prior month), Personnel Spendingmonth-over-month, August (0.2% expected, 0.1% during prior month), Actual Personal Spendingmonth-over-month, August (0.2% expected, 0.2% during prior month), PCE Deflatormonth-over-month, August (0.1% expected, -0.1% during prior month), PCE Deflatoryear-over-year, August (6.0% expected, 6.3% during prior month), PCE Core Deflatormonth-over-month, August (0.5% expected, 0.1% during prior month), PCE Core Deflatoryear-over-year, August (4.7% expected, 4.6% during prior month), NMI Chicago PMISeptember (51.8 expected, 52.2 during prior month), University of Michigan Consumer Sentiment, September final (59.5 expected, 59.5 prior)

PCE Deflatormonth-over-month, May (0.7% expected, 0.2% during prior month), PCE Deflatoryear-over-year, May (6.4% expected, 6.3% during prior month), PCE Core Deflatormonth-over-month, May (0.4% expected, 0.3% during prior month), PCE Core Deflatoryear-over-year, May (4.8% expected, 4.9% during prior month), NMI Chicago PMIJune (58 expected, 60.3 during previous month)

Earning Calendar

Monday: No notable reports scheduled for release.

Tuesday: Blackberry (BB), Cal-Maine Foods (CALM), Cracker Barrel (CBRL), Jabil (JBL)

Wednesday: Cintas (CTAS), Jefferies (JEF), MillerKnoll (MLKN), Paychex (PAYX)

Thursday: Bed Bath & Beyond (BBBY), Micron Technology (MU), Nike (NKE), Carmax (KMX), Rite Aid (RAD)

Friday: Carnival (CL)

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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