Traders will need to digest a flood of economic data and “Fed speak” this week as the market awaits all the information slated for release.

This stock market is an uncertain environment where no trader wants to be on the wrong side of the chopping block if the market suddenly shifts.

Flood of economic data ahead keeps traders guessing

Last week stock market trading could not sustain the early rally despite economic data in the form of jobs reports not being overly negative.

It was a case of good news just wasn’t good enough, and untrusting market participants bailed for a sell-off to close the week.

This highlighted how buyers have retreated and the bears are in control, according to Mary Ellen McGonagle, Senior Managing Director of Equities at Simpler Trading.

“Investors who earlier in the week were hoping for a pivot by the Federal Reserve to slow down their rate hike campaign, are grasping the central bank’s resoluteness in their intent to slow inflation at all costs,” Mary Ellen said.

Mary Ellen pointed out the uncertainty circling through the market that started last week when there were 13 new appearances by Fed Reserve (Fed) officials. At each session these officials confirmed the central bank’s intent to push benchmark interest rates higher until economic data indicates that 40-year high inflation is easing.

Some traders may hold hope of a pivot from that hawkish position, according to Mary Ellen, based on the lone exception from Atlanta Fed President Dr. Raphael Bostic, who expressed interest in pausing rate hikes in December.

“More members may move to Bostic’s side of the table, but clearly not until lower inflation and employment data confirm that it’s warranted,” Mary Ellen said.

This week Simpler’s traders are watching key events that include: earnings reports; U.S. Producer Price Index (PPI) and Consumer Price Index (CPI) numbers (Wednesday and Thursday, respectively); Federal Open Market Committee (FOMC) minutes released Wednesday (from September meeting), and University of Michigan Consumer Sentiment Index numbers on Friday.

How these various releases may influence the central bank remains to be seen. The next FOMC meeting is slated for Nov. 2.

What to watch as market unfolds this week

As these economic variables play out, Mary Ellen is keeping an eye toward stocks that may be showing strength through the turmoil.

Energy is a key sector Simpler’s traders are watching for possible trade opportunities.

“Energy stocks have powered higher amid a rise in the price of oil,” Mary Ellen said, noting the close on Monday was almost $91. “The increase followed news that oil production cuts will take place in November.”

The positive of higher oil prices is a double-edged sword for traders and consumers.

“Higher oil prices are good news for the growth prospects of oil-related companies,” Mary Ellen said. “It’s bad news for inflation, as higher oil prices lead to higher gas prices.”

“Brent crude is inching closer to the $100 per barrel price which has been a critical level in the past as it has coincided with higher prices among energy stocks,” Mary Ellen said. Historically, energy stocks can perform well in a rising interest rate environment.”

The opposite edge of that positive for energy stocks is higher prices – inflation – which keeps the Fed sticking to plans for higher interest rates in the battle to curb inflation.

Earnings season heralds a new market wrinkle

Another area for traders to watch this week is the kickoff of third quarter earnings season.

“In addition to closely watching corporate reports relative to estimates, management’s outlook for earnings going forward will be highly impactful,” Mary Ellen said. “At this time recession fears, as well as the negative impact of a higher U.S. dollar on profits, are a concern as we head

into earnings season.”

The U.S. dollar (DXY) jumped above $113 on Monday, adding fuel to recession fears as U.S.-based international companies battle shrinking profit margins due to overseas production costs.

“Companies that report lower or provide negative guidance to growth prospects have

been punished,” Mary Ellen said.

She used the example of Advanced Micro Devices, Inc. (AMD) as an example after announcing last week that sales are on track to be well below estimates due to weak personal computer chip demand. The stock fell 13% on Friday, and pushed stocks of many other semiconductor companies lower.

“In a bull market period, weak earnings reports or lowered guidance from corporations will often be overlooked,” Mary Ellen pointed out.

The influence – or fear – of inflation is driving sentiment of market participants, and the prospects of further downward movement are stark.

“At this time, the overall trend for the markets is down, and unless we see inflation levels subside we cannot begin to look for a market bottom,” Mary Ellen said. “While strong earnings have been the driver of a new leg up in a bull market phase, positive earnings in a bear market phase will be mostly overlooked or temporarily championed.”

The many economic data releases will attract the eyes of Fed officials, and traders searching for potential opportunities as the market reacts.