Housing data and retail could be the next catalysts for the market in week ahead

Published Fri, Aug 12 20223:51 PM EDTUpdated Fri, Aug 12 20224:51 PM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

Stocks could continue to push higher into the dog days of August, as investors await earnings from big retailers and new data on housing and the consumer. Economic reports in the week ahead include housing starts Tuesday and existing home sales Thursday. Home sales are expected to fall more than 6%, according to Dow Jones, as a result of the impact of rising mortgage rates on housing. Retail sales, slated for Wednesday, are expected to be up just slightly and well below June's 1% gain. "I think if you do see something, whether there was a big drop-off in housing data or retail data, that could be enough to blunt this upswing or put some pressure on it," said Keith Lerner, chief market strategist and co-CIO at Truist. "But I think what you're seeing is — when you move past the earnings season, and it's a long wait to the next Fed meeting — it's more about positioning." Lerner said investors are playing catch-up, increasing their exposure to stocks after two major economic reports on jobs and inflation came in better than expected. The July employment report showed the economy added 528,000 jobs, more than double what was expected. The consumer price index was flat in July, meaning prices did not rise month-over-month, though they were up 8.5% over last year. Investors play catch-up Lerner said the one-two punch from that data encouraged investors to think a recession may have been priced in too quickly and that possibly inflation is peaking, giving the Fed some flexibility. "This positive data happened at a time when investors were very lightly positioned and caught off sides," he said. That has forced many big investors to add to their holdings, and that has supported the market. Stocks in the past week were higher, with energy and financials leading the way. The S & P 500 closed up 3.3%, at 4,280, while the Nasdaq was up 3.1% for the week. The Russell 2000 was the outperformer, up 4.9% for the week as small caps continue to outperform. "It feels like where July was the month where we celebrated better-than-feared earnings, it feels like August is the month where we celebrate better-than-feared economic data," said Art Hogan, chief market strategist with B. Riley Wealth Management. Earnings reports in the coming week are expected from Walmart and Home Depot on Tuesday and Target on Wednesday. Those reports should provide an update on consumer spending trends, as well as how retailers are coping with rising costs and inventory and supply chain issues. "This is the week we kick off the consumer portion of the earnings reporting season. After some of the big-box stores talked about inventory issues, I'd be hard pressed to think expectations could be much lower," said Hogan. "A good portion has to be priced in." Gargi Chaudhuri, head of BlackRock's iShares investment strategy in the Americas, said an important development for markets is the Inflation Reduction Act , winding its way through Congress on Friday after Senate approval. She said it is unprecedented government spending on climate and clean energy, and investors should be exposed to those groups. Chaudhuri noted that interest has grown in BlackRock's iShares Global Clean Energy ETF. ICLN was up about 5.1% in the past week and 23.3% over the past month. TAN, the Invesco Solar ETF has also benefited. That ETF was up 5.1% for the week, and 26.2% over the past month. Stocks this summer have been climbing higher, defying the view of many strategists, who expect an inflation-fighting Fed would continue to pressure the market. "I really think right now we have a pain trade," said Lerner of Truist. He described himself as being in the skeptical camp, but he said the rally has made investors wonder if they've been too negative. "It starts to have people question their views and feel uncomfortable ... It forces people who are underweight to put on some new positions," he said. Chaudhuri said she too is skeptical about the rally and says she has recommended staying invested but positioned defensively. She said she would look at strategies such as investing in health care or minimalizing volatility. She also said fixed income has become a good hedge once more for stock portfolios. "The market is now perceiving that there is a Fed pivot that is about to come. I don't necessarily believe that is the case," she said. She said the July CPI report helped encourage that view. "We're happy to see a little cooling off in inflation, but nothing in the data leads us to think we're going to see 2% inflation. It still points to inflation by the end of the year is around 5%. It's too early for a Fed pivot," she said. Technically speaking Strategists who follow charts say the S & P 500 could be in for more choppiness, but it is making progress toward recapturing its old highs. First, the S & P 500 rose above the June high of 4,177 in the past week, boosting the bullish case and expanding the summer's range. The technicians also said the S & P could be signaling that the June low was now the bottom. For a second day Friday, the S & P 500 traded above the 4,231 level, the 50% retracement from its peak to trough. It closed above it on Friday. Strategists who watch charts say a close above that level would signal the market has already seen its bottom and will not return to the lows. "It's recognition. It's a big development, but it doesn't guarantee we're going to go straight up from here," cautions BTIG's Jonathan Krinsky. Week ahead calendar Monday Earnings: ThredUp, Tencent Music 8:30 a.m. Empire State manufacturing 10:00 a.m. NAHB survey 10:50 a.m. Fed Governor Christopher Waller 4:00 p.m. TIC data Tuesday Earnings: Walmart , Home Depot, Agilent 8:30 a.m. Housing starts 8:30 a.m. Building permits 8:30 a.m. Business leaders survey 9:15 a.m. Industrial production Wednesday Earnings: Target, Cisco , Lowe's, Synopsys, Tencent Holdings, Analog Devices, Performance Food Group, Krispy Kreme , TJX, Bath and Body Works 8:30 a.m. Retail sales 9:30 a.m. Fed Governor Michelle Bowman 10:00 a.m. Business inventories 2:00 p.m. FOMC minutes 2:20 p.m. Fed Governor Bowman Thursday Earnings: Applied Materials, Kohl's, Tapestry , BJ's Wholesale, Estee Lauder, NetEase, Ross Stores 8:30 a.m. Initial claims 8:30 a.m. Philadelphia Fed manufacturing 10:00 a.m. Leading indicators 10:00 a.m. Existing home sales 1:20 p.m. Kansas City Fed President Esther George 1:45 p.m. Minneapolis Fed President Neel Kaskari Friday Earnings: Buckle, Foot Locker , Deere 9:00 a.m. Richmond Fed President Tom Barkin