Stocks Brace for Potential Volatility Ahead as Investors Await Key Economic Data

Investors are closely monitoring the upcoming presidential debate and the release of the August consumer inflation report, which could significantly impact the direction of the stock market. With the Federal Reserve's monetary policy decision looming, traders are anticipating how the central bank will respond to the latest economic data.

Navigating the Uncertain Terrain: Investors Brace for Potential Market Turbulence

Futures Slip as Investors Assess Debate and Await Inflation Data

U.S. stock futures declined on Tuesday night as investors digested the presidential debate between Republican nominee Donald Trump and Vice President Kamala Harris. Traders are also eagerly awaiting the release of the August consumer price index (CPI) report on Wednesday, which could provide crucial insights into the pace of inflation and influence the Federal Reserve's monetary policy decisions.Dow Jones Industrial Average futures fell 172 points, or 0.42%, while S&P 500 futures and Nasdaq 100 futures both dipped 0.52% and 0.68%, respectively. The market's attention is firmly fixed on the upcoming CPI report, which could help determine the size of the widely expected rate cut at the Federal Reserve's meeting on September 18.

Anticipating the Fed's Next Move: Investors Weigh Potential Rate Cut Scenarios

Traders are closely monitoring the CPI report and Thursday's producer price index, as these economic indicators could significantly influence the Federal Reserve's monetary policy decisions. According to CME's FedWatch Tool, the market is currently pricing in a 69% chance of a 25-basis-point rate cut and a 31% likelihood of a 50-basis-point reduction.Kristina Hooper, chief global market strategist at Invesco, believes the Fed is likely to opt for a 25-basis-point rate cut, as a more aggressive 50-basis-point cut could "set off alarm bells" and be seen as an "admission of guilt." Hooper noted that the central bank may need to signal through its dot plot projections that further rate reductions are on the horizon sooner rather than later, as prolonged restrictive monetary policy could increase the odds of a recession.

Navigating Potential Market Turbulence: Strategas Warns of Possible "Punch in the Stomach"

In addition to the already weak September, which has historically been a challenging month for stocks, Wall Street could face another jolt in the coming weeks, according to Chris Verrone, partner and head of technical analysis at Strategas Research Partners."I don't think we get through the next four five six weeks without some punch in the stomach," Verrone told CNBC's "Closing Bell" on Tuesday. While Verrone believes the underlying trends are strong enough to ultimately withstand any potential market volatility, he acknowledged that there are questions about the "countercyclical message of markets and macro" and what it could mean for 2025.

Earnings Growth Forecasts Heavily Reliant on Tech and Healthcare Sectors

Strategas Securities analysts Ryan Grabinski and Jonathan Byrne noted that next year's ambitious earnings growth forecasts for the S&P 500 are heavily dependent on stronger results from the technology and healthcare sectors. These two sectors are expected to contribute half of the 15% projected growth in S&P 500 profits in 2025.The analysts warned that "any downward revisions there will slow the growth rate significantly." Financials and communications services stocks are also expected to play a significant role in boosting next year's profits, while consumer staples and consumer discretionary sectors are only forecast to contribute 10% combined.Strategas also highlighted the assumption of sky-high profit margins for corporate America as a whole, with the 15% earnings growth implying that profit margins would need to reach an all-time high of 13.9% next year, more than a percentage point higher than any point in the last 35 years.