After a week centered on inflation concerns and questions about the Federal Reserve’s next move, investors step into a relatively quiet five-day stretch, with big box stores and other major retailers’ earnings reports and a slew of manufacturing data taking center stage.

The S&P 500 (^GSPC) closed last week up 0.4%, the Nasdaq (^IXIC) was up 0.6%, and the Dow (^DJI) fell 0.6%.

It’s been a busy stretch for investors over the past few weeks. Breaking news and major geopolitical developments notwithstanding, a relatively quiet week might be just what the doctor ordered as summer winds to a close and the kids go back to school.

While earnings reports from the big box stores will take up most room on the corporate calendar this week, kicking things off on Tuesday are results from Chinese tech conglomerate Baidu (BIDU), with AI cloud revenue in focus.

Thursday will bring the bulk of the big box reports, with Walmart (WMT), Alibaba (BABA), Ross Stores (ROST), and Deere & Company (DE) all set to share their quarterly results, followed by BJ’s Wholesale Club (BJ) on Friday.

On the economic data front, manufacturing readings will be front and center, with industrial production and manufacturing production numbers from the Federal Reserve Board on Tuesday, followed by S&P Global’s US manufacturing PMI reading on Friday. Also on the calendar are housing starts data on Tuesday, expected to show a major downward shift, and the release on Wednesday of the minutes from the Fed’s last meeting.

Stocks up, vibes down

The vibes are in a tough spot, to say the least.

US consumers grew more gloomy about the economy in August as sentiment declined amid the war, higher bond yields, and geopolitical uncertainty, according to a preliminary consumer sentiment reading from the University of Michigan.

“Although the early-month weakening in sentiment was pervasive across various demographic groups, notably large reductions were seen among older consumers, lower-income consumers, and those without a college degree,” said the survey’s director, Joanne Hsu. “These groups are all particularly vulnerable to any erosion of purchasing power stemming from inflation.”

The readings come after consumer and wholesale inflation data from the Bureau of Labor Statistics’ monthly Consumer Price Index (CPI) and Producer Price Index (PPI) readings showed only moderate improvement. Only 8% of consumers expect income growth to outpace inflation over the next year, per the survey.

That inflation data was enough for traders to back off bets that the Federal Reserve will raise rates at its September meeting. Prior to those releases, bets had been largely split 50-50 after a far weaker-than-expected July jobs report. Now, the market is assigning roughly 70% odds that the Fed will stay on hold.

In another bearish sign, retail sales data from the Department of Commerce, also released on Friday, showed sales fell 0.6% month over month, a disappointment compared with expectations that sales would grow 0.1%, as concerns linger about the true strength of the consumer.

AI capex spending is running up against the physical economy

Now that earnings season is nearly done, there are new — and even bigger — forecasts of how much money hyperscalers will throw at the AI data center build-out this year.

Goldman Sachs estimates the number will reach $1 trillion globally in 2026. JPMorgan forecasts spending of $697 billion in the US. And Bank of America sees a “path toward ~$1.2 trillion” by 2027.

But money’s not going to get the job done — because the bottleneck isn’t cash.

Despite investment in new manufacturing capacity, chip shortages persist. Construction contractors have highlighted the lack of skilled labor to complete projects on their clients’ desired timeline. Then there are the growing regulatory constraints stemming from public backlash against data centers, including a one-year moratorium in New York and an audit of power hookups in Texas.

And power is perhaps the biggest bottleneck of all. Bloomberg New Energy Finance estimates a 19-gigawatt shortfall in power for AI data centers by 2035 if growth continues at its current pace.

“When you put that all together, the ambitions of the data center companies to get the power that they need to train their algorithms,” George Gianarikas, an analyst at Canaccord Genuity who covers power generation companies, said to Yahoo Finance, “In our very strong view, it’s not going to happen at the pace that they expect.”

Wood Mackenzie recently reported that data center power generators are trying to mitigate anticipated rejections by filing multiple applications with different utilities. The energy analysis firm said utilities and grid operators may approve only 28% of the power requested, because of both those “phantom” applications and those submitted by less-experienced operators.

The dollar is stuck between two forces

The US dollar (DX-Y.NYB) is currently caught in a tug-of-war between oil prices and the Federal Reserve, Rabobank senior FX strategist Jane Foley pointed out in a note to clients on Thursday.

It began when the dollar’s old relationship with oil started breaking down.

Historically, crude oil (CL=F, BZ=F) and the greenback have moved in opposite directions. Oil is priced in dollars, so a stronger currency weighs on the commodity because it costs buyers more to purchase it.

That relationship began to shift in 2022, when Russia invaded Ukraine and the US cemented its position as a major energy exporter, Foley stated. That shift became more significant as the war in Iran disrupted shipping through the Strait of Hormuz.

Higher oil prices once represented an almost unambiguously negative shock for the US economy. But the war in Iran — which has triggered the largest energy supply crisis in history — has presented an opportunity for major US oil producers to ramp up production and take advantage of higher prices, bolstering the country’s energy exports.

“For as long as shipping through the Strait of Hormuz is curtailed, the USD is likely to retain a safe haven premium, supported by the US’s energy exporter status,” Foley wrote.

There is, however, a competing force acting on the greenback: the Federal Reserve. A much softer-than-expected July payrolls report and relatively benign July inflation data have pushed investors to pare back expectations for rate hikes, removing a key source of dollar support.

This all comes, of course, just after the US Treasury staged a major intervention in the Japanese yen. Notably, Treasury Secretary Scott Bessent chose to sell euros instead of dollars to buy yen as the White House attempts to keep a floor of support under the dollar.

Economic and earnings calendar

Monday

Economic data: Empire manufacturing, August (10 expected, 15.6 previously); NAHB housing market index, August (33 expected, 34 previously)

Earnings calendar: BHP Group (BHP)

Tuesday

Economic data: ADP weekly employment, Aug. 1 (+8,250 previously); New York Fed services, August (8.7 previously); Import price index, month-on-month, July (+0.1% expected, +0.3% previously); Import price index, year-on-year, July (+7.1% previously); Export price index, month-on-month, July (0% expected, -0.6% previously); Export price index, year-on-year, July (+10.2% previously); Housing starts, month-on-month, July (-5.8% expected, +19% previously); Industrial production, month-on-month, July (+0.3% expected, +0.1% previously); Manufacturing production, month-on-month, July (+0.2% expected, 0% previously);

Earnings calendar: Keysight Technologies (KEYS), Baidu, Inc. (BIDU), Pony AI (PONY)

Wednesday

Economic data: MBA mortgage applications, week ended Aug. 14 (+3.6% previously); FOMC meeting minutes, July meeting

Earnings calendar: The TJX Companies (TJX)

Thursday

Economic data: Philadelphia Fed business outlook, Aug. (25 expected, 41.4 previously); Initial jobless claims, week ended Aug. 15 (209,000 previously); Continuing claims, week ended Aug. 8 (1.777 million previously)

Earnings calendar: Walmart (WMT), Alibaba Group (BABA), Deere & Company (DE), Ross Stores (ROST)

Friday

Economic data: S&P Global US manufacturing PMI, August preliminary meeting (53.8 expected, 53.9 previously); S&P Global US services PMI, August preliminary meeting (53.9 expected, 54.6 previously); S&P Global US composite PMI, August preliminary meeting (54.5 previously);

Earnings calendar: Ubiquiti (UI), BJ’s Wholesale Club Holdings (BJ)

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