Next week’s inflation data will be the first major test for markets after the Federal Reserve adopted a dovish stance on interest rates, while bond yields are also expected to stabilize. Stocks have been trading higher recently after Federal Reserve Chairman Jerome Powell said a rate hike was unlikely, a stance that investors expected to be a positive for stocks. A strong earnings season and some cooler labor data also have investors more optimistic about the outlook for this year. The Dow Jones Industrial Average rose for an eighth straight session on Friday, its longest winning streak since December and its strongest week since 2024. After reaching a high of 4.7%, it finally remained around 4.5%. .DJI 1M Mountain Dow Jones Industrial Average But stocks will face a key hurdle next week with the release of the Consumer Price Index for April, due out on Wednesday. Data that is in line with expectations could signal further gains for stocks, while data that rises sharply could unsettle investors who worry that Fed policymakers will have to revisit their interest rate forecasts. Mike Dickson, head of research and quantitative strategy at Horizon Investments, said: “The Fed has made it clear that they believe there is noise in the consumer price index (CPI), or just inflation noise.” He added, “But if A sharp rise in inflation will have a considerable impact on the Fed’s actions. On Friday, all three major stock indexes posted gains for the week, with the S&P 500 and Nasdaq rising more than 2%. Both indexes rose more than 1%. Market reaction to this year’s inflation data will be crucial for investors not only as they try to interpret the Fed’s moves, which rely on data, but the inflation report itself has not been very encouraging recently. Stocks fell from this year’s highs as investors accepted the possibility that the Fed may take longer to return to its 2% inflation target, but investors were more hopeful about the upcoming data, UBS said this week. , predicting that “U.S. inflation will fall again in the coming months.” According to consensus forecasts from FactSet, April CPI, due out next week, is expected to rise 0.4% on a monthly basis and 3.4% for the year. Last month they grew 0.4% and 3.5% respectively. Core CPI is expected to rise 0.3% quarterly, up 3.7% from the same period last year. That would be down from gains of 0.4% and 3.8% respectively last month. However, some investors said they would be specifically watching the market’s reaction to the CPI data rather than the report itself. Notably, Horizon Investments’ Dixon said he will closely monitor the ICE BofAML MOVE index, which measures volatility in fixed-income markets, much like the CBOE Volatility Index (VIX), which tracks equity volatility. Same. A MOVE reading above 100 indicates more uncertainty about the outlook for interest rates and can be a bearish signal for stocks. Most recently, the MOVE index fell back below 100 after last week’s central bank meeting. But Dickson hopes that after the consumer price index is released as expected, the index will continue to remain relatively dovish, or even slightly higher, because this indicates that the market expects the Fed to maintain a dovish stance. “That would be a good result because it shows that the market is confident in what the Fed said last week,” Dickson said. “So it’s going to be an important statistic to watch.” “The concern is about rate cuts, Rather than a pause,” outpacing the CPI could mean further gains for stocks, especially as more investors begin to see the Fed’s pause as good news for stocks. In fact, over the past 50 years, the S&P 500 has gained an average of 6% during previous pauses, said Jeff Buchbinder, chief equity strategist at LPL Financial. But over the past six pauses since 1989, that gain has actually jumped to an average of 13.1%, as gains have accelerated in more modern market history. “Long pauses are generally good for stocks, and gains since the Fed’s last rate hike in July 2023 are consistent with recent history,” Buchbinder wrote in a recent note. Separately, Strategas’ Jason · Jason De Sena Trennert told investors in a note this week that they should “worry about rate cuts, not pauses” because the Fed’s easing policy “is typically associated with economic and market stress.” related”. Unless, of course, central banks manage to achieve a soft landing. For investors hoping that the S&P 500 will continue to trend higher to end the year, this could represent a buying opportunity even after an already stellar start. Ken Mahoney, CEO of Mahoney Asset Management, expects investors will now be able to buy back large tech stocks other than Tesla after recent share price declines. “Large-cap tech stocks were put to the test in April,” Mahoney said. “But after earnings, I think…the balance sheet, the buybacks, the growth potential, the artificial intelligence potential, all those headwinds are still intact.” If anything, the investor said, the stock market Having the ability to overcome the recent wall of worry could mean more sustainable gains from now on. “I think the market took three different hits in April and held up pretty well,” Mahoney said. “So I think that’s another reason for the bullish sentiment to come back again.” A consumer earnings report is also due. Release next week. Home Depot released its report on Tuesday, as did Charles Schwab. Walmart and Deere released their reports Thursday. One week ahead calendar all times are Eastern Time. No major events Monday, May 13 Tuesday, May 14 8:30 AM PPI (April) Earnings: Home Depot, Charles Schwab Wednesday, May 15 8:30 AM CPI (April) AM 8:30 Hourly earnings (April) 8:30 a.m. Average work week (April) 8:30 a.m. Empire Index (May) 8:30 a.m. Retail sales (April) 10 a.m. Business inventories (March ) 10 a.m. NAHB Housing Market Index (May) Earnings: Progressive, Cisco Thursday, May 16 8:30 a.m. Preliminary Building Permit Data (April) 8:30 a.m. Continuing Jobless Claims (05/04) 8:30 AM Export Price Index (April) 8:30 AM Housing Starts (April) 8:30 AM Import Price Index (April) ) 8:30 AM Initial Jobless Claims (05/11) 8: 30 Philadelphia Fed Index (May) 9:15 AM Capacity Utilization (April) 9:15 AM Industrial Production (April) 9:15 AM Manufacturing Production (April) Profit: Take-Two Interactive Software , Applied Materials , Walmart , Deere Leading Indicators Friday, May 17, 10am (April)
