S&P 500 nears record as weak retail data and Iran tensions shape critical week

The S&P 500 enters a pivotal week for earnings and economic data within touching distance of a record close, after finishing Friday, August 14, just 13 points below its all-time closing high of 7,798.99.

The benchmark slipped 0.17% to 7,785.76 in the previous session, with Applied Materials (NASDAQ:AMAT) contributing to the decline after its shares fell 5.1%.

Investors are now balancing weaker U.S. consumer indicators, shifting Federal Reserve expectations, a packed retail earnings calendar and continuing geopolitical risks surrounding Iran and the Strait of Hormuz.

Weak consumer data reduces September Fed hike expectations

The week’s monetary-policy backdrop was significantly reshaped by economic releases showing signs of weakening U.S. consumer activity.

Retail sales unexpectedly declined in July, marking their first monthly contraction in nine months, while the University of Michigan’s August consumer sentiment index came in at 51, below the consensus forecast of 54.5, according to Reuters.

Together, the reports pushed market expectations for a September Federal Reserve rate increase down to roughly 30–33%, compared with around 50% earlier last week. Asian markets subsequently traded broadly sideways on Monday as the U.S. dollar weakened.

“If you can’t look to the Fed for guidance, then you have to increasingly look to earnings for guidance,” Shawn Snyder, economic strategist at Potomac Fund Management, told Reuters.

That puts additional importance on this week’s results from major U.S. retailers.

Walmart (NYSE:WMT) and Home Depot (NYSE:HD) are scheduled to report on Wednesday, August 19. Investors are likely to focus closely on management commentary regarding lower-income consumers and the impact of higher gasoline prices.

Target (NYSE:TGT), Lowe’s (NYSE:LOW), and TJX (NYSE:TJX) are due to follow on Thursday, August 20, completing a major test for consumer discretionary companies. The sector remains one of only two S&P 500 sectors still in negative territory for 2026.

Fed minutes take centre stage before Jackson Hole

Monetary policy will remain firmly in focus on Wednesday when the Federal Open Market Committee publishes minutes from its latest meeting.

The release represents one of the most important opportunities for investors to assess the Fed’s thinking before Fed Chair Kevin Warsh appears at Jackson Hole on August 27.

With Warsh providing limited forward guidance so far this year, bond traders are expected to scrutinise the minutes for signs that policymakers retain any appetite for further monetary tightening.

Workday takeover report puts software sector in focus

Software stocks are also attracting attention after Reuters reported on Thursday that private-equity group Silver Lake was in discussions to acquire Workday (NASDAQ:WDAY).

The potential transaction could value the human-resources software company at approximately $51 billion, which would make it one of the largest software buyouts ever, according to the report.

Workday shares jumped roughly 18% on Thursday following the news before falling 3.8% on Friday.

Neither company has officially confirmed the discussions or provided a potential transaction timetable. Investors will therefore be watching SEC filings for any material developments.

The reported talks have also revived interest across the broader enterprise-software industry.

Reddit prepares to enter the S&P 500

Reddit (NYSE:RDDT) provided another major move on Friday, climbing almost 13% after being selected for inclusion in the S&P 500 effective August 18.

The company will replace AvalonBay Communities in the benchmark, requiring index-tracking funds to adjust their holdings accordingly.

Passive funds are expected to complete much of their rebalancing into RDDT around Monday’s open. While the precise volume of compulsory buying has not been established, Reddit’s price action is likely to attract considerable attention from index and passive-fund managers.

Iran and Hormuz keep energy risks elevated

Energy markets remain another significant source of uncertainty.

Brent crude settled at $88.52 per barrel on Friday, gaining 1.67% during the session as negotiations between the U.S. and Iran over transit through the Strait of Hormuz remained deadlocked.

The Pentagon has indicated that a naval blockade of Iranian ports could continue indefinitely, while Reuters reported two further attacks on ships late last week.

The continuing threat of supply disruption is keeping inflation concerns alive even as weaker U.S. economic data reduces expectations for higher interest rates.

Gold also extended its gains on Monday, supported by a weaker dollar and fading Fed hike expectations. Spot gold had closed Friday at $4,374.27 an ounce.

China slowdown and Japanese yields complicate global backdrop

Economic developments in Asia are adding another layer of uncertainty.

China’s industrial output expanded 4.5% year-on-year in July, below the 4.8% forecast in a Reuters poll and down sharply from June’s 5.3% growth rate.

Chinese retail sales were also considerably weaker than expected, increasing just 0.6% against a forecast of 1.5%.

Meanwhile, Japanese government bond yields increased for a sixth consecutive session to 2.925%, approaching their highest level in three decades and strengthening expectations for further Bank of Japan tightening.

Bank of America expects the central bank to deliver four rate increases by July 2027, taking the policy rate to 2%.

AI earnings remain strong but expectations are increasingly demanding

Artificial intelligence remains one of the most powerful forces influencing U.S. equities, although Applied Materials demonstrated that strong corporate results may no longer be sufficient when investor expectations are already elevated.

“A lot of the drivers in the market right now are around various parts of AI, and Applied Materials is an example of a company that had a beat-and-raise but expectations were high and so the stock sold off,” Thomas Martin, senior portfolio manager at GLOBALT Investments, told Reuters Friday.

That tension could continue through the remainder of earnings season.

According to LSEG data, aggregate second-quarter earnings for the S&P 500 are up 52% year-on-year, driven heavily by AI infrastructure investment from hyperscalers including Microsoft and Amazon. Approximately 85% of companies that have reported results have exceeded estimates.

Flash PMIs provide next test for Fed expectations

Friday’s preliminary August PMI figures will provide investors with their first major snapshot of business activity during the new month.

Consensus expectations stand at 54.0 for manufacturing and 53.9 for services.

A substantial downside surprise in either indicator could reinforce expectations that the Federal Reserve will leave rates unchanged, potentially providing additional support for gold and U.S. Treasuries ahead of the Jackson Hole gathering the following week.

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