The US stock market has officially entered a correction phase. Can this week's retail data and the Federal Reserve's interest rate decision restore market confidence?

According to the Zhitong Finance APP, the stock market has fallen to its lowest point in nearly six months due to concerns about slowing economic growth and the potential impact of tariffs, shaking investor confidence.

Last week, the S&P 500 index fell nearly 2.3%, and the Dow Jones index dropped 3%. The tech-heavy Nasdaq Composite Index declined by about 2.4%. On Thursday, the S&P 500 officially entered a correction phase, down 10% from its all-time high on February 19.

In the coming week, the health of the Federal Reserve and the U.S. economy will remain the focus of investors. When the Federal Reserve announces its next monetary policy decision on Wednesday, the market widely expects it to keep interest rates unchanged. Investors will be looking for any clues regarding when the Fed might cut rates again.

The retail sales data for February, released on Monday, will be the highlight of the weekly economic data releases. On the corporate side, quarterly earnings from Nike (NKE.US), FedEx (FDX.US), and Micron (MU.US) will be closely watched after the market closes on Thursday.

Patient Federal Reserve

The recent sell-off in the stock market coincides with growing concerns about slowing economic data, prompting investors to expect the Federal Reserve to cut rates about three times in 2025.

However, with inflation still well above the Fed's 2% target, coupled with tariffs and other policies from the Trump administration that could further drive up prices, the market generally expects the Fed to keep rates unchanged on Wednesday.

A key focus will be the Fed's latest Summary of Economic Projections (SEP). This includes its "dot plot," which depicts policymakers' expectations for the future path of interest rates, as well as comments from Fed Chair Jerome Powell during the press conference.

When the Fed released its dot plot last December, it projected a median federal funds rate range of 3.75% to 4% by the end of 2025, reflecting two rate cuts of 25 basis points this year, which is one less than the market expects.

Michael Gapen, chief U.S. economist at Morgan Stanley, stated that due to ongoing uncertainty in fiscal policy putting pressure on the economic outlook, he expects the Fed to "exhibit great patience."

Gapen wrote, "Chair Powell may take a cautiously optimistic view of the economy, but due to high policy uncertainty, he will point out that the outlook is unclear."

Consumer Report

The worst retail sales report in a year is one of the first pieces of data as the market begins to assess the outlook for U.S. economic growth over the past month.

On Monday morning, investors will again see whether the 0.9% decline in retail sales in January marks the beginning of a slowdown in consumer spending. Economists expect a rebound in February data, with retail sales projected to grow by 0.6% The economist team at Wells Fargo wrote in a report to clients: "Before tightening their belts in January, the holiday sales season in November and December performed relatively well, with sales being revised higher. Therefore, the decline in January may reflect more of a strong finish to the 2024 holiday shopping season rather than a shift in consumer spending."

Given the recent stock market decline due to concerns about economic growth, strategists noted that any signs of economic improvement could serve as a catalyst for the market. On the other hand, any further deterioration could put greater pressure on the stock market.

David Kostin, Chief U.S. Equity Strategist at Goldman Sachs, wrote in a report to clients: "The key market risk going forward is a further severe deterioration in the economic outlook." The report lowered the year-end target for the S&P 500 index from 6,500 points to 6,200 points.

The "Seven Giants" Remain Market Leaders

In the past month’s stock market plunge, the technology sector's "Seven Giants" faced significant selling pressure.

The stock prices of Nvidia, Alphabet, Amazon, Meta, Apple, and Microsoft have all fallen about 20% from their recent 52-week highs. Meanwhile, Tesla's stock price has dropped nearly 50% from last year's peak.

Despite this, the total market capitalization of these stocks accounts for about 30% of the total market capitalization of the S&P 500 index, not far from the peak ratio of around 30% in 2024. As recent market behavior has shown, their direction remains crucial for the next steps of the market.

Scott Chronert, U.S. Equity Strategist at Citigroup, stated: "For the market to move higher from here, you need to broaden the argument, but you need the Seven Giants to contribute."

Chronert added that the companies that have led S&P 500 earnings growth over the past few years still have their "structural growth factors" intact. BMO Capital Markets Chief Investment Strategist Brian Belski agreed on the importance of this group.

Belski stated: "Perhaps these tech stocks are a bit ahead of themselves. But ultimately, these are the giant companies that determine the growth trajectory of the U.S. stock market. They are not going away."