The S&P 500 Index has remained inside a narrow range since the first week of August. It ended the week at 7,718, a few points below the all-time high of 7,814. This article looks at the top catalysts that will move the index and its ETFs like the Vanguard S&P 500 (NYSE:VOO) and the SPDR S&P 500 ETF Trust (NYSE:SPY).
S&P 500 Index to React to US Inflation Data
The key catalyst for the S&P 500 Index will be the US inflation report. The Bureau of Labor Statistics (BLS) will release the Producer Price Index (PPI) data on Thursday, followed by the Consumer Price Index (CPI) on Friday.
US inflation is expected to have remained above 2% in August as gasoline and diesel prices climbed further. Diesel hit a record seasonal high during the month, and since it powers most of the trucks that move goods across the country, the increase is likely to push up prices elsewhere in the economy.
This inflation report is important because of next week’s Federal Reserve interest rate decision. A higher-than-expected inflation will raise the possibility of the bank hiking interest rates in this meeting.
Market participants are already pricing in higher interest rates after last Friday’s nonfarm payrolls report, which showed that the economy added over 162k jobs, much higher than expected. US stocks tends to underperform the market when rates are rising.
In this case, a rate hike may push Trump to intensify his pressure on the Fed. He has already warned that he will end trade with all countries that the US has a trade deficit with.
Adobe, Oracle, and Kroger Earnings Reports
The second quarter earnings season has been highly successful, with the S&P 500 Index having an earnings growth rate of over 50%. Most companies have already released their earnings report so far.
The main companies to watch this week Adobe (NASDAQ:ADBE) and Oracle (NASDAQ:ORCL). These two firms are important because of their role in the AI industry. Adobe shares have underperformed the market because of the fear that its business will be disrupted by AI, while Oracle has slumped because of its huge debtload. As such, their earnings will provide information on where things stands.
Kroger (NYSE:KR), another top retailer, will release its earnings on Friday, but the impact on the stock market will be limited.
Analysts predict that the earnings growth will continue, with a FactSet (NYSE:FDS) report showing that Q3’s earnings growth will be 28.3%.
Bond Market Volatility
The S&P 500 Index will also react to the jitters in the bond market. US bond yields have soared in the past few months. The ten-year yield has jumped to 4.815%, its highest level since 2023. Similarly, the 30-year has been rising, and this trend may continue as US budget deficit jumps and public debt hits $40.1 trillion.
The performance of the bond market affects the stock market because it influences the interest rates companies pay to borrow. Higher bond yields also draw investors away from stocks toward the better returns bonds now offer. In addition, they weigh on corporate valuations, since most models discount future profits back to today’s value.
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