July Forecast: Wall Street Braces for Volatility Amid 4 Market-Shaping Events

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July is expected to be another volatile month on Wall Street amid a plethora of market-moving events.
Investor focus will be on the U.S. jobs report, CPI inflation data, the Fed’s policy meeting, as well as the start of the Q2 earnings season.
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Stocks on Wall Street are on pace to end June on an upbeat note as a recent batch of strong economic data helped ease recession fears.
The economically sensitive index of small-cap stocks is on track to come out on top in June, with a roughly 7.5% gain heading into the final trading session of the month.
DOW, S&P 500, Nasdaq YTD Chart
Meanwhile, the tech-heavy and the benchmark index are both about 5% higher this month and are on track to book their fourth straight monthly advances.
The blue-chip Average is the relative underperformer, up just 3.7%.
As June comes to an end, investors should prepare themselves for fresh in July, which has a reputation for being a relatively strong month for the stock market. Since 1990, the S&P 500 has gained an average of 1% in July, making it the seventh-best month of the year in terms of performance returns.
S&P 500 Seasonality
Source: Bloomberg
As such, here are key dates to watch as the calendar flips to July:
1. U.S. Jobs Report: Friday, July 7
The U.S. Labor Department will release the June at 8:30 AM ET (12:30 PM GMT) on Friday, July 7, and it will likely be key in determining the Federal Reserve’s next rate decision.
Forecasts center around a continued solid pace of hiring, even if the increase is smaller than in previous months.
The consensus estimate is that the data will show the U.S. economy added 200,000 positions, according to Investing.com, slowing from jobs growth of 339,000 in May.
The is seen holding steady at 3.7%, staying close to a recent 53-year low of 3.4%.
U.S. Unemployment Rate
Meanwhile, are expected to rise 0.3% month-over-month, while the year-over-year rate is forecast to increase 4.1%, which is still too hot for the Fed.
Prediction:
I believe the June employment report will underscore the remarkable resilience of the labor market and support the view that more rate hikes will be needed to cool the economy.
Fed officials have signaled in the past that the jobless rate needs to be at least 4.0% to slow inflation. To put things in context, the unemployment rate stood at 3.6% exactly one year ago in June 2022, suggesting that the Fed still has room to lift rates.
2. U.S. CPI Data: Wednesday, July 12
The June consumer price index report looms large on Wednesday, July 12, at 8:30 AM ET and the numbers will likely show that neither nor are falling fast enough for the Fed to end its inflation-fighting efforts.
While no official forecasts have been set yet, expectations for annual CPI range from an increase of 3.6% to 3.8%, compared to a 4.0% annual pace in May.
U.S. Headline CPI
The headline annual inflation rate peaked at a 40-year high of 9.1% last summer, and has been on a steady downtrend since, however prices are still rising at a pace well above the Fed’s 2% target range.
Meanwhile, estimates for the year-on-year core figure – which does not include food and energy prices – center around 5.0%-5.2%, compared to May’s 5.3% reading.
U.S. Core CPI
The underlying core number is closely watched by Fed officials who believe that it provides a more accurate assessment of the future direction of inflation.
Prediction:
Inflation may be cooling – just not yet fast enough for the Federal Reserve. Overall, while the trend is lower, the data will likely reveal that inflation continues to rise far more quickly than what the Fed would consider consistent with its 2% target range.
With Chairman Powell reiterating that the U.S. central bank remains strongly committed to bringing inflation back down to its 2% goal, I believe there is still a long way to go before Fed policymakers are ready to declare mission accomplished on the inflation front. At a European Central Bank forum on Wednesday, Powell said he did not see inflation falling to the 2% target until 2025.
A surprisingly strong reading, in which the headline CPI number comes in at 4% or above, will keep pressure on the Fed to maintain its fight against inflation.
3. Fed Rate Decision: Wednesday, July 26
The Federal Reserve is scheduled to deliver its policy decision following the conclusion of the FOMC meeting at 2:00 PM ET on Wednesday, July 26.
As of Friday morning, financial markets are pricing in a roughly 87% chance of a 25-basis point rate increase and a near 13% chance of no action, according to the Investing.com .
Fed Rate Monitor Tool
But that of course could change in the days and weeks leading up to the big rate decision, depending on the incoming data.
Should the U.S. central bank in fact follow through with a quarter-percentage-point rate hike, it would put the benchmark Fed funds target in a range between 5.25% and 5.50%, the highest since January 2001.
Fed Funds Rate
Fed Chair Powell will hold what will be a closely watched press conference shortly after the release of the Fed’s statement, as investors look for fresh clues on how he views inflation trends and the economy and how that will impact the pace of monetary policy tightening.
Powell had said in Portugal that U.S. interest rates are likely to rise further and did not rule out moving at consecutive meetings.