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GDP, retail earnings — What you need to know for the week ahead

Myles Udland
Markets Reporter

Stocks are at a record high.

On Friday, the S&P 500 closed at a record high of 2,874.69, the benchmark index’s first new record since the January 26, 2018 peak that preceded the two sharp market drops that shook investors over the winter months and had markets stalled out through much of the summer.

“Stock Market hit all time high on Friday. Congratulations U.S.A.!” said President Donald Trump on Twitter. 

The tech-heavy Nasdaq also gained ground on Friday, rising 0.86% to pace gains for the major indexes and also secure a new record high close. The Dow added 133 points on Friday, or 0.5%, and remains about 900 points away from its record level.

This week’s rise in stocks, however, came amid one of the most tumultuous weeks in office for Trump, which was capped with news that Trump Organization CFO Allen Weisselberg might be cooperating with prosecutors.

In an interview with Fox News this week, Trump went so far as to discuss his view of what would happen to markets were he to get impeached. “If I ever got impeached,” he told Fox News, “I think the market would crash. I think everybody would be very poor because without this thinking, you would see numbers that you wouldn’t believe.”

President Donald Trump arrives to speak at the Ohio Republican Party State Dinner, Friday, Aug. 24, 2018, in Columbus, Ohio. (AP Photo/Evan Vucci)

And it is amid this kind of speculation on his own demise from the President of the United States that stocks made new records.

“Any investor can tell you that the first lesson of the stock market is that no one person is bigger than the market,” said analysts at Bespoke Investment Group on Friday.

“And that goes for billionaires (and Presidents) as well!,” the firm added. “We say this in no way to downplay the positive impact of what the President has accomplished with respect to business sentiment and tax and regulatory policy during his time in office, but while any major upheaval or scandal in Washington would likely have a short-term impact, life goes on.”

In the week ahead, the economics calendar will bring investors a couple of key reports, notably the second estimate of second quarter GDP. This number is expected to show the economy grew at a pace of 4% in the second quarter, a slight downgrade from the initial estimate that pegged growth at 4.1%.

Additionally, investors will get key data on inflation in the form of “core” PCE, the Fed’s preferred inflation measure, which is expected to show prices rose 2.3% over the prior year in July. The final reading on consumer confidence in August from the University of Michigan will also be released on Friday morning.

And on the earnings side, the retail sector will remain in focus with Best Buy (BBY), Tiffany (TIF), PVH (PVH), Kroger (KR), Dollar General (DG), Dollar Tree (DLTR), and Ulta Beauty (ULTA) all set to release earnings.

Other S&P 500 members scheduled to report earnings this week include (CRM), H&R Block (HRB), and HP Enterprise (HPE).

And while it seems the news flow these days takes few weeks off, the coming week is likely to be one of the lowest of the year for trading volumes as it serves as the unofficial last week of summer ahead of the Labor Day holiday in the U.S.

Economic calendar

  • Monday: Dallas Fed manufacturing activity, August (30 expected; 32.3 previously)
  • Tuesday: Case-Shiller home price index, June (+0.2% expected; +0.2% previously); Richmond Fed manufacturing index, August (18 expected; 20 previously); Conference Board consumer confidence index, August (126.5 expected; 127.4 previously)
  • Wednesday: Second quarter GDP, second estimate (+4% annualized pace of growth expected; +4.1% previously); Pending home sales, July (+0.5% expected; +0.9% previously)
  • Thursday: Personal income, July (+0.4% expected; +0.4% previously); Personal spending, July (+0.4% expected; +0.4% previously); “Core” PCE, year-on-year, July (+2.3% expected; +2.2% previously); Initial jobless claims (215,000 expected; 210,000 previously)
  • Friday: Chicago PMI, August (63 expected; 65.5 previously); University of Michigan consumer sentiment, August (95.5 expected; 95.3 previously)

Powell’s stars

Federal Reserve Chair Jerome Powell’s biggest speech since being sworn in as head of the central bank has come and gone.

On Friday, Powell spoke before the annual Jackson Hole Economic Symposium, the year’s biggest gathering of economists and central bankers. Powell outlined his view of the challenges facing the Fed as they try to steer the economy towards full employment (u*), price stability (pi*), and the assumed neutral interest rate (r*) that ensure these dynamics.

Navigating by the stars can sound straightforward,” Powell said. “Guiding policy by the stars in practice, however, has been quite challenging of late because our best assessments of the location of the stars have been changing significantly.” And while one of Powell’s stated goals as Fed chair thus far has been to make Fed communications more intelligible to the broader public, much of his speech at Jackson Hole hewed more to the genre of academic economics and monetary policy theory.

Although Friday’s speech did not do much to alter market expectations of two more interest rate hikes this year, Powell did offer a key insight for markets into how he views the interplay between the Fed’s policy goals and the reality of financial markets.

“In the run-up to the past two recessions, destabilizing excesses appeared mainly in financial markets rather than in inflation,” Powell said. “Thus, risk management suggests looking beyond inflation for signs of excesses.”

From left, Esther George, President and CEO of the Federal Reserve Bank of Kansas City, John Williams, President and CEO of the Federal Reserve Bank of New York, and Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System walk together after Powell’s speech at the Jackson Hole Economic Policy Symposium on Friday, Aug. 24, 2018 in Jackson Hole, Wyo. (AP Photo/Jonathan Crosby)

Unlike recent modern Fed chairs Yellen, Bernanke, and Greenspan, Powell is not a Ph.D economist. Powell does not have a body of academic research against which one can understand his potential reactions to future economic shocks. Powell does, however, have considerable private sector experience.

It should not then be surprising to see Powell turn towards financial markets as a source of clues for where the economy might be headed as much as he might look to inflation and unemployment.

In a note to clients following Powell’s speech on Friday, Michael Feroli, an economist at JP Morgan, said this comment is, “is consistent with the common perception that Powell may be more open than either Bernanke or Yellen was to using monetary policy to ‘lean against the wind’ of financial exuberance.”

It will simply be, then, rising inflation that Powell’s Fed views as the clearest sign the economy is overheating and the Fed needs to act.

The market’s rally on Friday, which sent stocks to a record high, was in part seen as a response to Powell’s speech that outlined a more dovish view of monetary policy than some had expected. But with the Fed chair looking beyond just the inflation and employment dynamics that outline the central bank’s dual mandate, Powell leaves the door open to surprising markets somewhere down the line.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland