Stocks opened cautiously higher to start the week, but were mixed by the close.
Monday's choppy trading likely foreshadows what we'll see throughout the week as Wall Street awaits rate-cut clues from Wednesday's release of the minutes from the July Fed meeting and Federal Reserve Chair Jerome Powell's speech this Friday at the Jackson Hole Economic Symposium.
Just days after the central bank concluded its most recent policy meeting – where it left the federal funds rate unchanged – the July jobs report came in much lower than expected.
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The weak data immediately boosted expectations for a quarter-point rate cut at the next Fed meeting in September – and had some folks calling for a half-point reduction.
And while last week's mixed inflation data slightly lowered the odds, CME FedWatch shows futures traders are still pricing in an 83% chance the Fed will come through with a 25-basis-point cut.
"The main event for this week may very well shape expectations for the central bank's path going forward," says José Torres, senior economist at Interactive Brokers.
While a few market participants are anticipating up to three rate cuts by year's end, Torres notes that "there are some signs that inflationary pressures," and this could lead to the Fed maintaining its wait-and-see approach.
This, he adds, "certainly has the potential to disappoint Wall Street during a historically weak seasonal period."
Retail earnings roll in
It's not all about the Fed this week. Major retailers will report earnings, giving us a closer look at consumer spending amid higher tariffs and sticky inflation.
Among the most notable prints will come from Walmart (WMT, +0.7%), with the world's largest retailer set to disclose its fiscal second-quarter results ahead of Thursday's open.
UBS Global Research analyst Michael Lasser expects Walmart's earnings report to show the retailer's "underlying momentum remains strong" and that it "is in good position to generate its algorithm over a multi-year period."
Lasser has a Buy rating on the top-rated Dow Jones stock and says its current valuation – WMT is trading at 38.5 times forward earnings – is justified given its "unique opportunity for significant margin expansion" and the "consistency and visibility of its business."
Home Depot (HD), Lowe's (LOW) and BJ's Wholesale (BJ) are also some of the highlights on this week's earnings calendar.
Target gets downgraded ahead of earnings
In addition, Target (TGT, +1.9%) will report earnings this week, with the retailer's second-quarter report due out ahead of Wednesday's open.
Wall Street expects the print to show year-over-year declines on both the top and bottom lines. And BofA Securities analyst Robert Ohmes believes the company's "long-term outlook is deteriorating."
The analyst downgraded Target to Underperform from Neutral ahead of earnings, the equivalent of Sell and Hold, respectively. He also lowered his price target to $93 from $105, representing implied downside of more than 11% from today's close.
"We see increasing longer-term sales and margin risks for TGT given slowing digital sales growth, a lack of scale in digital advertising and third-party marketplace, elevated tariff, pricing and merchandising headwinds," Ohmes wrote in a note to clients.
He also noted "increasing competitive threats" from Walmart and Amazon.com (AMZN).
Most of Wall Street remains on the sidelines when it comes to Target. Of the 37 analysts covering the consumer staples stock who are tracked by S&P Global Market Intelligence, seven say it's a Strong Buy, three have it at Buy, 23 call it a Hold, and four rate it a Sell.
This works out to a consensus Hold recommendation.
Novo Nordisk gains on Wegovy's FDA win
In non-earnings news, shares of Novo Nordisk (NVO) jumped 3.7% after the company's obesity drug, Wegovy, was granted accelerated approval from the Food and Drug Administration (FDA) to treat adults with metabolic dysfunction-associated steatohepatitis (MASH), a serious liver disease.
This approval "could start to help shift the momentum for Novo following a more difficult start to the year for the name as competition from compounders and a series of guidance cuts weighed on shares," says BMO Capital Markets analyst Evan David Seigerman.
The analyst has a Market Perform (Hold) rating on NVO, saying he continues to view the health care stock "as a show-me story into the back half of the year."
As for the main indexes, the blue-chip Dow Jones Industrial Average slipped 0.08% to 44,911, the broader S&P 500 finished fractionally lower at 6,449, and the tech-heavy Nasdaq Composite edged 0.03% higher to 21,629.
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