(Bloomberg) — Stocks struggled to gain momentum as traders awaited key inflation data that will shape the outlook for the Federal Reserve’s next moves.

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Stocks edged lower after recovering from Monday’s market slump that rocked trading around the world. While the consumer price index likely edged up in July, annual readings are likely to continue rising slowly. The recent decline in price pressures has boosted Fed officials’ confidence that they can begin cutting interest rates and turn their attention back to the labor market, which is showing stronger signs of weakening.

For Chris Larkin of E*Trade at Morgan Stanley, the data comes at a crucial time for the market. In just a few weeks, the discussion has shifted from whether the economy has slowed enough to concerns that it could get “stuck in the mud,” he said.

“Investors will be looking for numbers that are in the sweet spot – cool enough that no one questions the likelihood of a rate cut in September, but warm enough to put aside the recession concerns that have rocked markets recently,” Larkin said.

According to Deutsche Bank AG, investors have cut their equity holdings during the recent turmoil by the most since the pandemic began. An analysis of past growth fears suggests that equity correlations and volatility “will only gradually return to ‘normal levels,'” said David Kostin of Goldman Sachs Group Inc.

“If economic concerns subside, the recent sell-off presents an opportunity to buy stocks with healthy fundamentals at valuation discounts,” he wrote.

The S&P 500 oscillated around 5,335 points. The Cboe Volatility Index (VIX) remained relatively stable at around 20. This after an unprecedented rise last week, which raised the question of whether the index was not “overestimating” the stress.

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The yield on 10-year government bonds remained almost unchanged at 3.93%.

A double whammy of economic uncertainty and a weak period in corporate earnings forecasts is likely to cap gains in equity markets, says Michael Wilson of Morgan Stanley.

The strategist – one of the most well-known bearish observers on US stocks until last year – said he expected the S&P 500 to trade in a range between 5,000 and 5,400 points as macroeconomic data did not provide clear signals in the short term.

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Against the backdrop of a weakening economy and negative earnings revisions, the risk-reward ratio for equity markets remains mixed during the summer months, say strategists at JPMorgan Chase & Co. led by Mislav Matejka.

“The Fed will begin cutting interest rates, but this may not lead to a sustained increase as the cuts could be seen as reactive and below expectations,” they wrote.

Investors have a brief window of opportunity later this month to buy falling U.S. stocks as selling pressure from systematic funds eases and companies increase share buybacks, according to Scott Rubner of Goldman Sachs Group Inc.

“This will be my last bearish equity market forecast for August as we exit the worst supply-demand mismatch in equities for August,” Rubner wrote in a note to clients.

At least one indicator suggests that last Monday’s drama was more like a minor collapse than a harbinger of even worse things to come.

Consider the Cboe Volatility Index and the option-adjusted spread of the Bloomberg US Corporate Bond Index. Based on a long-term relationship between the two, the VIX’s closing price of 39 a week ago should have translated to a 3.5% reading for corporate bond spreads. But they ended much lower, at 1.32%.

The discrepancy between the two suggests that the recent downturn was technical in nature and does not point to an economic crash, say Bloomberg Intelligence strategists Christopher Cain and Michael Casper. In fact, such unusual discrepancies have historically led to above-average stock returns over the next three to six months.

Tom Essaye of The Sevens Report says he does not believe fundamentals have deteriorated enough to justify de-risking and reducing equity or risk exposure, but cautions against ignoring the recent spike in volatility.

“Much of what I read over the weekend characterized this recent volatility as a typical decline in an up market,” Essaye said. “For this reason, I continue to advocate exposure to defensive sectors and funds with minimal volatility.”

Company highlights:

• B. Riley Financial Inc. is now being investigated in the United States to determine whether the company gave its investors an accurate picture of its financial health despite a series of losses and a falling share price.

• JetBlue Airways Corp. has begun issuing bonds and loans totaling $2.75 billion. The bonds will be backed by the company’s loyalty program. The airline plans to use the bonds to increase its reserves and finance general corporate purposes.

• Vestas Wind Systems A/S has issued a full-year profit warning, a setback to the company’s efforts to reverse the heavy losses of recent years.

• Starboard Value, an investment firm that has taken activist positions in companies in the past, owns a stake in Starbucks Corp., according to a report.

• Hawaiian Electric Industries Inc. estimated losses from its expected provision for liabilities resulting from one of the worst wildfires in U.S. history at $1.7 billion and issued a going concern warning.

Important events this week:

• Expectations of the ZEW survey in Germany, Tuesday

• US Producer Price Index (PPI), Tuesday

• Fed Chairman Raphael Bostic speaks on Tuesday

• GDP, industrial production of the Eurozone, Wednesday

• US CPI, Wednesday

• Real estate prices, retail sales, industrial production in China, Thursday

• US initial jobless claims, retail sales, industrial production, Thursday

• Fed President Alberto Musalem and Patrick Harker will speak on Thursday

• Housing starts in the USA, consumer sentiment from the University of Michigan, Friday

• Fed Chairman Austan Goolsbee speaks on Friday

Some of the key market movements:

Shares

• The S&P 500 fell 0.1% at 11:25 a.m. New York time

• The Nasdaq 100 remained little changed

• The Dow Jones Industrial Average fell 0.5 percent

• The Stoxx Europe 600 remained barely unchanged

• The MSCI World Index remained little changed

Currencies

• The Bloomberg Dollar Spot Index remained little changed

• The euro rose 0.2 percent to 1.0937 dollars.

• The British pound rose 0.2% to $1.2781.

• The Japanese yen fell 0.5% to 147.36 per dollar

Cryptocurrencies

• Bitcoin rose 1.7% to $59,510.33

• Ether rose 3.9% to $2,657.83

Bonds

• The yield on 10-year government bonds fell two basis points to 3.92%.

• The yield on German 10-year bonds remained almost unchanged at 2.22%

• The yield on British 10-year bonds fell by three basis points to 3.92 percent

Raw materials

• West Texas Intermediate crude oil rose 1.8 percent to $78.24 a barrel

• The spot price of gold rose 1.1 percent to $2,458.98 per ounce.

This story was created with the assistance of Bloomberg Automation.

– With assistance from John Viljoen and Matthew Burgess.

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