US stocks face 3 major tests again this week! Volatility expected to continue

Most of the time in 2024, U.S. stock investors have been celebrating a "Goldilocks" economy that is neither too hot nor too cold. However, a series of weak U.S. economic data has raised concerns in the market about the possibility of a bear market. Ian Lyngen, a rate strategist at BMO Capital Markets, wrote in a report last Friday, "Even if you don't believe the Fed will cut rates by 50 basis points in September, or cut rates by 25 basis points at each of the remaining three meetings this year, one thing is clear - Goldilocks has left the stage." But will she be absent for long? Some investors doubt that the market's reaction has been excessive. They believe that rather than the economy spinning out of control, it is actually slowing down, with the previously overheated labor market returning to normal. Angelo Kourkafas, Senior Investment Strategist at Edward Jones, said that although the market has experienced a "growth scare," investors need to remember that the "landing" part of a so-called "soft landing" implies a slowdown in economic growth and employment. This does not necessarily mean that the bull market is likely to end, but Kourkafas noted that it will lead to a more volatile trading environment. In fact, the Chicago Board Options Exchange Volatility Index (VIX), commonly known as the "fear index," surged to 29.66 points in trading last Friday, the highest level since March 2023, and closed at 23.39 points, above its long-term average slightly below 20 points. Nicholas Colas, co-founder of DataTrek Research, said in a report last Friday that a "growth scare" typically accompanies an increase in volatility. This fear is a common feature of mid-term markets. A shift in market narrative is brewing. Some investors and strategists have previously warned that cracks are beginning to show in consumer spending, laying the groundwork for a shift in market narrative from focusing on inflation to focusing on economic growth. Analysts point out that the November U.S. presidential election provides another uncertainty factor. At the same time, the market will face a test on Monday when the U.S. will release the ISM Non-Manufacturing Index for July. Kourkafas said that the soft reading of the ISM Manufacturing Index last Thursday helped trigger the sell-off in U.S. stocks, so investors will want to see if the more dominant services sector has also been hit. Kourkafas added that given the heightened concerns about the deterioration of the labor market following last Friday's jobs report, the weekly release of initial and continuing jobless claims data will also be closely watched. Of course, NVIDIA's (NVDA) earnings report later this month will also be crucial. Keith Lerner, Chief Market Strategist and Co-Chief Investment Officer at Truist, wrote in a report, "The bull market still deserves our confidence However, we expect the market to experience greater volatility, a situation that will persist as we enter the historically more challenging period of August to September. He wrote: "Indeed, the market often takes two steps forward and one step back."