Jeffrey Sherman, Deputy Chief Investment Officer at DoubleLine Capital, is urging investors to be cautious before making any moves – in either direction.
"It's too early to go down," Sherman Customs CNN Business. But it's not the time to add large amounts of risk, he said.
Sherman's boss, famed investor Jeff Gundlach, said during a webcast on Thursday that he sees a 40% to 45% chance of a US recession within six months. DoubleLine Capital, which manages $ 1
The problem is that there are many mixed signals.
In the bullish camp, retail sales in the United States grew to a healthy pace in May. Shoppers splurged on electronics, appliances and of course, online. Small business optimism rebounded last month to the best level since the fall.
And most alarmingly, the bond market has been acting weird.
The yield curve – the gap between short and long term Treasury bond yields – has inverted, signaling that investors believe the Federal Reserve policy has become too restrictive. Inversion has been a reliable recession indicator in the past.
"We don't have enough signals yet," said Sherman. "The only thing flashing red is the yield curve."
"No one envies him at this point," said Sherman.
] All this comes only six months after the Fed took its foot of the gas in terms of rate increases. The central bank lifted rates a total of nine times, ending in December, since cutting them to ultralow levels in the aftermath of the financial crisis. Since then Powell has stressed the Fed needed to be "patient" before its next move.
That said, odds are the central bank will give investors some more indication of its intentions beforehand. And that's why next week's Fed press conference will be so closely watched. Things could go two ways: Powell could discuss the economic data that has been undercutting expectations and repeat that the central bank intends to support the economy, hinting at a rate cut. This could lead to a stock rally. Lower interest rates are good for companies, and good for companies is good for the stock market.
On the other hand, Powell could also stress that the Fed will need a few more data points before making a decision on interest rates, pushing a potential rate cut to the September Fed meeting and leaving hopeful investors high and dry. Option two could see stocks heading lower.
"I don't think the Fed wants to disappoint the market again," said Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management, adding that Powell's Fed was the most market-dependent central bank he had seen.  One way or another, it looks to be a volatile week.
3. Tariff hearings start: The United States Trade Representative's office will hold public hearings on tariffs starting Monday. Companies and leaders from industry groups are expected to testify
President Donald Trump has threatened to impose tariffs on an additional $ 300 billion in goods imported from China – including toys, clothes, shoes, appliances and televisions. Last month, the Trump administration increased tariffs to 25% from 10% on $ 200 billion worth of Chinese goods.
"We know firsthand that the additional tariffs will have a significant, negative, and long-term impact on American businesses, farmers, families, and the US economy," the companies said. in the letter.
5. Coming next week:
Monday – Paris Air Show, US Treasury foreign ownership report
Tuesday – Adobe earnings, US housing starts, US Senate hearing on tariffs
Friday : US existing home sales, Markit flash US manufacturing PMI