Investors are bracing for an action-packed week in markets. Here is what to watch for.

By Joseph Adinolfi

Investors better buckle up, because markets could be in for a wild week.

It all starts with Federal Reserve Chairman Jerome Powell's biannual testimony before Congress on Tuesday and Wednesday, followed by a marquee inflation report, and a flurry of closely scrutinized corporate earnings, on Thursday and Friday.

All of this will unfold against a backdrop of an increasingly fast-paced political news cycle, as pressure mounts on President Joe Biden to drop out of the presidential election race. Meanwhile, his chief rival, former President Donald Trump, could unveil his candidate for running mate. Until recently, markets have largely ignored potential risks surrounding the U.S. November election, but traders' response to last month's debate suggests this may be starting to change.

Adding another wrinkle, Monday marks the halfway point for what has historically been the strongest two-week stretch for U.S. stocks of the entire calendar year, according to data from Goldman Sachs Group.

See: This week's U.S. inflation report could have serious implications for stocks

So far, the S&P 500 SPX has put in a strong performance, with the index logging its biggest advance since April last week. The gains have continued through Monday, as the index cemented its longest winning streak since January and its 35th record high of 2024, according to Dow Jones Market Data.

With such strong momentum and seasonal factors favoring more gains, it could take a lot to knock stocks off course this week.

"All of the things that had been driving volatility over the past three years aren't moving the needle anymore," said Mark Hackett, chief of investment research at Nationwide, during an interview with MarketWatch.

But that doesn't mean investors should just sit back and ignore the risks. Stocks could sell off if this week's June inflation data disappoint, or if Powell doesn't offer up the same dovish tone on monetary policy that characterized his commentary during last week's central-bank summit in Sintra, Portugal.

Investors will be particularly keen to hear anything that suggests an interest-rate cut will likely follow in September, said Chris Zaccarelli, chief investment officer with the Independent Advisor Alliance, during an interview with MarketWatch. Powell's take on inflation and the labor market will be of particular interest.

"I think people are going to be hoping to get more information out of himto try and understand how they might handle the incoming data and how soon they might be able to cut rates," Zaccarelli said.

Some will be scanning Powell's comments for hints at what Thursday's inflation report could contain, said Mike O'Rourke, chief market strategist at JonesTrading, in emailed commentary. O'Rourke said Powell likely had an advance look at the data, although the Fed chair has denied in the past that the central bank has gotten such early previews.

"I think the data this week will be pretty pivotal," Zaccarelli said. Powell has said he expects the Fed will cut rates later this year, but that the data show there is no need to rush. However, a hotter-than-expected inflation number could scupper investors' hopes for a cut in September months before the Fed actually meets.

The June consumer price index isn't the only inflation-related data point due to be released this week. Investors will also receive an update on the June producer price index, along with the University of Michigan's consumer-sentiment gauge, which includes a reading on consumers' inflation expectations. All three reports could influence investors' views on the likelihood of a September cut, Zaccarelli said.

The summer corporate earnings reporting season is also expected to kick into high gear this week as a handful of companies release their results from the most recent quarter.

The main event takes place on Friday, when a handful of U.S. megabanks, including JPMorgan Chase & Co. (JPM), BNY (BK), Wells Fargo & Co. (WFC) and Citigroup Inc. (C) , will share their results.

From the big banks, investors will be hoping to glean some clues about the health of the economy and the consumer after recent economic data have pointed to cooling growth.

"People look to the banks to get a better view on where things are headed for the overall economy," Zacarrelli said.

But a handful of reports from several consumer-focused names could also move the needle on Thursday, when Delta Air Lines (DAL), PepsiCo (PEP) and ConAgra (CAG) release their results, Hackett said.

Lately, some retailers and other consumer-facing companies have warned that the American shopper is starting to bend under the weight of higher prices.

Walgreens Boots Alliance shares cratered after its weak guidance last month. And back in May, Walmart Inc. (WMT) and Target Corp (TGT) raised questions about the strength of the consumer when they reported their most recent results.

Additionally, the Treasury will auction off new batches of short-dated bills, as well as longer-dated notes and bonds.

-Joseph Adinolfi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

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07-09-24 0736ET

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