Investing.com - Wall Street heads into a crucial stretch of earnings and data with the S&P 500 sitting just 13 points below its all-time closing high of 7,798.99, recorded Friday, August 14, after a pullback of 0.17% to 7,785.76 dragged by a 5.1% slide in Applied Materials.

The week's defining catalyst may already be baked in: U.S. retail sales unexpectedly declined in July, the first monthly drop in nine months, while the University of Michigan's August consumer sentiment reading came in at 51, well below the consensus of 54.5, according to Reuters. Those two prints together drove the probability of a September Fed rate hike to roughly 30–33%, down from about 50% earlier last week, and helped Asia drift sideways in Monday trade as the dollar slipped broadly.

"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 framing puts this week's retail earnings squarely in the crosshairs. Walmart and Home Depot both report on Wednesday, August 19, and their commentary on lower-income shoppers and gas-price headwinds will be treated as the ground truth that Friday's data could not provide. Target, Lowe's, and TJX follow Thursday, August 20, rounding out a consumer discretionary gauntlet for a sector that remains one of only two in the S&P 500 still negative for 2026.

Also on Wednesday, the Federal Open Market Committee releases minutes from its most recent meeting — the closest investors will get to policy clarity before Fed Chair Kevin Warsh takes the Jackson Hole stage on August 27. With Warsh having offered minimal forward guidance throughout the year, bond markets will parse every word of those minutes for any residual appetite for tightening.

Software investors, meanwhile, are tracking Reuters' Thursday report that private-equity firm Silver Lake is in talks to acquire Workday in a deal that could value the HR-software company at roughly $51 billion, which would rank among the largest software buyouts in history, according to the outlet. Workday shares surged roughly 18% Thursday on the news before giving back 3.8% Friday. No official confirmation or timeline has been disclosed by either company, and investors should monitor SEC filings for any material developments. The prospective deal has reignited interest across enterprise-software names; Workday trades on Nasdaq under WDAY.

Reddit (RDDT) added another dramatic wrinkle to Friday's tape, surging nearly 13% after being named to the S&P 500 effective August 18. The inclusion replaces AvalonBay Communities, and index-tracking funds are expected to complete rebalancing into RDDT around Monday's open. The exact volume of forced buying has not yet been quantified, but the price action heading into this week's open will be closely watched by passive-fund managers.

Energy is the other dominant risk factor. Brent crude settled at $88.52 per barrel on Friday, up 1.67% on the day, as U.S.-Iran talks over Strait of Hormuz transit remained deadlocked and the Pentagon indicated it could maintain a naval blockade of Iranian ports indefinitely. Two additional ship attacks occurred late last week, according to Reuters, keeping supply-disruption risk elevated and inflation concerns alive even as softer U.S. data has cooled rate-hike bets. Gold extended gains Monday on the combination of a weaker dollar and reduced Fed hike expectations, with spot gold having closed at $4,374.27 an ounce on Friday.

The global picture adds further complication. China's July industrial output rose 4.5% year-on-year, missing Reuters' poll estimate of 4.8% and slowing sharply from 5.3% in June; retail sales there grew just 0.6% against a 1.5% forecast. In Japan, government bond yields climbed for a sixth straight session to a near-30-year high of 2.925%, reinforcing Bank of Japan tightening bets, with Bank of America projecting four hikes by July 2027 bringing the policy rate to 2%.

"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 — strong earnings meeting even stronger expectations, is likely to persist through the rest of the reporting season, with aggregate S&P 500 Q2 earnings up 52% year-on-year per LSEG data, driven largely by AI-infrastructure spending at hyperscalers such as Microsoft and Amazon, with roughly 85% of reporters beating estimates.

Friday's flash PMI readings for August will offer the first activity snapshot for the new month, with manufacturing consensus at 54.0 and services at 53.9. A meaningful miss on either number would reinforce the Fed-hold narrative and could add momentum to gold and Treasuries heading into Jackson Hole the following week.