Since last Friday, the stock market has experienced notable gains. The Dow Jones Industrial Average and the Russell 2000 both increased by 2.9%, the S&P 500 surged by 3.9%, and the Nasdaq Composite rose by 5.3%. The volatility seen in August was initially sparked by a July jobs report, which raised concerns about a weakening economy and labor market. However, last week’s positive economic data (PPI and CPI) reassured investors, prompting strong buying activity.

PPI data provide bullish swing on the stock market

Both the monthly and annual figures came in slightly below expectations, with the monthly rate at 0.1% and the annual rate at 2.2%. This is excellent news as it represents the lowest annual pace since April. Excluding food and energy, the numbers were even more impressive, with the annual rate at 2.4% compared to the expected 2.7%.

CPI data added more confidence to the stock market

The July Consumer Price Index (CPI) saw a month-over-month increase of 0.2%, in line with market expectations. The year-over-year data came in at 2.9%, slightly below the anticipated 3.0%.

This marks the lowest annual inflation rate since spring 2021, indicating that the Federal Reserve’s approach is yielding positive results. The Core CPI, which excludes food and energy, also increased by 0.2% month-over-month, meeting forecasts. The year-over-year rise for Core CPI was 3.2%, matching expectations and representing the lowest core inflation rate since May 2021.

What is Next?

As we approach theweek of August 19th to August 23rd, investors will be closely monitoring several crucial economic indicators that could significantly impact market movements. Here are the main economic data points to watch:

August Flash PMI: The August flash PMI (Purchasing Managers’ Index) is set to be released, offering vital clues on output and inflation developments. This index is a key indicator of economic health in the manufacturing and service sectors, and it can provide early signals about the direction of the economy. According to the latest read showed byS&P Global, the July 2024 PMI stayed at 49.6, indicating a slight decline in business conditions.

Initial Jobless Claims: On August 22nd, the initial jobless claims data for the previous week will be published. This data provides insights into the labor market’s health and can influence investor sentiment. The market consensus for the U.S. initial jobless claims to be released on August 22, 2024, is around 225,000 to 240,000.

European CPI data for July 2024:The data should be released on August 20th. The current consensus is that theEU CPIslightly increased to 2.6% from 2.5% in July 2023.

On Wednesday, August 21st:we will be closely watching information oncrude oil inventoriesand theFOMC meeting. The minutes from the Federal Open Market Committee (FOMC) meeting held at the end of July are scheduled for publication midweek, providing comprehensive insights into the Federal Reserve’s considerations amidst strong anticipations of a rate cut in September. Furthermore, appearances by Fed officials at the Jackson Hole Symposium will be closely monitored as another platform for U.S. central bankers to signal their rate intentions. These remarks will be scrutinized alongside the release of the August flash PMI, which offers the earliest indications of output and price trends in the United States.

Current consensus suggests that the Fed may continue to signal await-and-see approach, particularly focusing on inflation data and economic indicators leading up to the meeting. The Federal Reserve has been cautious in its communications, emphasizing data dependency in its policy decisions.

Looking ahead to the meeting in September 2024, there is substantial market speculation regarding potential rate cuts. Analysts and economists generally agree that the Federal Reserve is likely to implement a rate cut at the September meeting. This expectation is supported by recent economic data and statements from Federal Reserve officials. Specifically, arate cut of 0.25 percentage points is anticipated, which would bring the benchmark interest rate to a range of 5% to 5.25%.

S&P Global Services PMI and the U.S. existing home salesare due for a release on August 22: The current market consensus for the S&P Global Services PMI stays at 54.0, which is a slight decrease from 55.0 prior reading. In regard to the U.S. existing home sales, the market currently expects some kind of stabilization (from the previous month decline), 3.92 million and increase from 3.89 million.

Stock market moves on the Week of August 19th

As we approach the week of August 19th, we anticipate the bullish momentum in stocks to persist. For the S&P 500 Index, we expect a strong upward trend throughout the week. If the economic data aligns with our expectations, we predict the SPX will exceed 5700. However, if the macroeconomic data falls short, the SPX may trade within the 5300-5600 range. Additionally, we foresee continued rotation from large-cap stocks to small- and mid-cap value stocks, which we favor.

Last week, the Nasdaq Index surpassed a strong resistance level at 18,835 on the weekly chart. This week, we will be closely monitoring the upside level of 18,865, which, in our view, would indicate a continuing bullish trend into September. Furthermore, if the macroeconomic data supports a more aggressive interest rate cut, we anticipate significant outperformance from small- and mid-cap stocks.

As of mid-August 2024, the market expectations for the Russell 2000 Index indicate a mixed outlook. For the week of August 19th, the Russell 2000 is forecasted to experience some volatility due to broader market conditions and specific factors affecting small-cap stocks. While the Russell 2000 recently saw a slight increase, rising by 0.3%, it has generally lagged behind larger indices like the S&P 500 and Nasdaq Composite.

As we approach the week of August 19th, we believe investors should gain more confidence in small-cap stocks. The upcoming FOMC meeting and its language could significantly influence these stocks, given their sensitivity to interest rate changes. We maintain a cautiously optimistic outlook on small caps for the week ahead.

Earnings we will be watching this Week:

Next week we get a handful of names, but earnings season is about 85% over.

I will be watching theretail nameslikeTarget (TGT)andZoom Video Communications (ZM). Others that will be interesting arePANW, SNOW and CAVA

Monday:EL,PANW, FN,

Tuesday:LOW, MDT, TOL, LZB, KEYS

Wednesday:TGT, M,TJX, DY,SNOW,ZM, SNPS, A,

Thursday:BIUD, AAP, TD, BILI, CAVA, INTU, RRGB

Friday:BKE

Our top picks for the Week:

Palo Alto Networks (PANW):We highlight PANW as our top pick for the week, as we believe that the company has potential to beat consensus earnings estimates for the fiscal third quarter 2025. PANW should release its Q3 2025 financial results on August 19th, after the U.S. market closes. The company’s focus on integrating multiple security solutions into a single platform has been well-received by customers. This approach addresses the increasing complexity and volume of cyber threats.

PANW’s revenue should be also driven by AI-focused security solutions. Leveraging artificial intelligence to enhance security outcomes has been a significant factor. AI helps in quickly identifying and mitigating threats, which is crucial given the rapid evolution of cyber attacks. As cyber attacks become more sophisticated, we foresee growing demand for PANW’s security solutions. There has been a consistent demand for Palo Alto Networks’ products and services, driven by the growing need for robust cybersecurity measures across various industries.

The company has continued to invest in innovation and has executed well on its go-to-market strategies, contributing to its profitable growth. However, we would like to warn investors on PANW’s stretched valuation based on market multiples and potentially low upside for the share price for the next 12-months.You can read the full research report on PANW here >>>

Target Corporation (TGT):The company should release its fiscal Q2 2025 financial results on August 21, before the U.S. market opens. The company’s revenue should reach $25.22 billion compared to $24.77 billion on Q2 2024. EPS are projected to reach $2.19 compared to $1.80 for Q2 2024. Still, during the past 10 days some analysts decreased their estimates for TGT’s Q2 2025 financial results. Target’s recent earnings have shown mixed results, with some quarters missing estimates by a small margin.

In our view, the retail sector has faced challenges, including inflation and changing consumer behavior, which could impact Target’s performance. Despite the lowered estimates, many analysts still hold a positive outlook on Target, with a consensus rating of “Moderate Buy”. However, we would like to highlight, that TGT currently is attractively valued. Should inflation rate slowdown going forward, we believe that TGT could benefit.You can read the full research report on TGT here >>>

Zoom Video Communications (ZM):this is our standout recommendation for this week. The company is set to release its Q2 2025 financial results on August 21, after the U.S. market closes. Current market consensus anticipates revenues of $1.15 billion, marking a slight increase from the $1.14 billion reported in Q2 2024. The expected Earnings Per Share (EPS) is projected at $1.22.

Over the past eight years, Zoom has achieved an impressive annualized revenue growth rate of 71.39%, calculated using the Compound Annual Growth Rate (CAGR). Notably, in recent quarters, Zoom has consistently exceeded consensus forecasts.

In our view, there are several factors that might help Zoom beat consensus estimates for this quarter:

Sustained Demand for Products: Zoom’s range of products, such as Zoom Video Webinars, Zoom Rooms, and Zoom Phones, continues to see strong demand. This sustained interest is likely to contribute significantly to their revenue.

AI Advancements: Zoom has been integrating AI across its platform, including enhancements in Zoom Workplace and the introduction of Workflow Automation. These advancements are designed to boost productivity and collaboration, which could attract more enterprise customers

Enterprise Customer Growth: The company has been successful in growing its enterprise customer base. The consensus estimate for enterprise customers in Q2 2025 is pegged at 193,904. This growth is crucial as enterprise customers typically contribute more to the revenue.

Freemium Model: Zoom’s freemium business model helps it rapidly acquire new users, who can later be converted into paying customers. This model has been effective in driving customer growth and revenue.

Strategic Partnerships and Expansions: Zoom’s partnerships and international expansions are also expected to drive revenue growth. These efforts help in reaching new markets and customer segments.You can read our full research report on ZM here >>>

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