What you need to know this week

Inflation data and the Federal Reserve’s latest monetary policy decision will highlight the week ahead for investors celebrating the dawn of a new equity bull market.

On Tuesday morning, investors will present the consumer price index (CPI) for May, a release that will come just hours before the start of the Fed’s two-day Federal Open Market Committee (FOMC) meeting, which will culminate with the political announcement on Wednesday afternoon.

Investors are currently expecting the FOMC to announce a pause in the Fed’s rate hike cycle after raising interest rates at the end of each of its 10 previous meetings. Tuesday’s inflation reading could further alter this outlook.

Other key economic data this week will include May retail sales and the first reading of consumer sentiment in June from the University of Michigan.

The corporate earnings calendar will be sparse.

The S&P 500 officially entered bullish territory on Thursday after the longest bear run since 1948.

Stocks celebrated with modest gains on Friday as the Nasdaq extended its winning streak to seven weeks.

Bank of America research indicates that the S&P 500 rises 92% of the time in the 12 months following the start of a bull market, compared to the historical average of 75% in any 12-month period dating back to the 1950s.

Wall Street expects the headline CPI, which includes food and energy prices, to have risen 4.1% from a year ago in May, a notable drop from the overall figure 4.9% in April.

Prices are expected to rise 0.4% month over month. The April data was the slowest year-over-year inflation reading in two years; a 4.1% increase in the headline CPI in May would be the slowest since April 2021.

On a “basic” basis, which excludes food and energy prices, inflation is expected to rise 5.2% from a year ago in May, a slowdown from the 5-year rise. 5% observed in April. Monthly core price increases are expected to be 0.4%.

The CPI report will be watched closely as the latest data for the Fed to digest after the recent jobs report and recent readings on the manufacturing and services sector showed an economy that was more resilient than previously expected. many experts.

Heading into this week’s meeting, the central bank’s benchmark benchmark rate, the federal funds rate, is in a range of 5% to 5.25%, the highest since September 2007.

“Ultimately, whether the Fed’s hikes in June and beyond will come down to core CPI inflation,” Citi economists wrote in a note to clients on Friday. Citi sees the potential for this report to show that prices are rising more than expected given that used car prices remain stubbornly high.

This week’s consumer and producer price data comes after the June jobs report shocked economists and showed the strongest job market growth since January.

But the report also found slowing wage growth as unemployment rose, leading some economists to believe the Federal Reserve’s tight fiscal policy is already taking hold.

“There is little incoming data to suggest the Fed will not follow clear guidance for a pause at next week’s Federal Open Market Committee meeting,” wrote Michael Pearce, chief US economist at Oxford Economics. , in a note to clients on Friday.

“Even if the core [inflation] number is timely, Fed officials are paying more attention to the trend, which is expected to be down in the second half as base effects work in their favour,” Pearce added.

U.S. Federal Reserve Chairman Jerome Powell attends a news conference in Washington, DC, U.S. May 3, 2023. The U.S. Federal Reserve raised the target range for the federal funds rate by 25 points on Wednesday basis at 5-5.25%, say the Fed

U.S. Federal Reserve Chairman Jerome Powell attends a press conference in Washington, DC, the United States, May 3, 2023. (Photo by Liu Jie/Xinhua via Getty Images)

Some pockets of the market have been in tears since Fed Chairman Jay Powell held his last press conference on May 3, which followed the Fed’s rate hike another 0.25%.

The Nasdaq Composite (^IXIC), driven in part by artificial intelligence hype, was the big winner as the Fed’s rate hike campaign is expected to wind down , up 10% since early May.

The S&P 500 (^GSPC) rose 5% over the period, while the Dow Jones Industrial Average (^DJI) posted the weakest gains, adding about 1.4% between Fed meetings.

Between the FOMC meetings in May and June, investors were offered a heavy dose of commentary from Fed officials, which taken together reveals a central bank that appears largely undecided about its next move.

Among FOMC voting members, Dallas Fed Chair Lorie Logan, Minneapolis Fed Chair Neel Kashkari, and Fed Governor Miki Bowman are among the notable “hawks,” or those who suggest that more rate hikes are likely needed to bring inflation down.

Fed Governor Philip Jefferson and Philadelphia Fed Chairman Patrick Harker are notable “doves,” or those in favor of a pause this week, among FOMC voters.

The Fed’s interest rate decision on Wednesday will also be accompanied by an updated summary of economic projections, which includes Fed officials’ forecasts for inflation, economic growth and the “dot plot” outlining expectations regarding future interest rates.

However, the way the Fed acts on Wednesday doesn’t change the fact that recent data has likely altered the central bank’s longer-term outlook.

After May’s strong jobs report and with expectations of a stubborn inflation print on Tuesday, UBS economist Jonathan Pingle expects the Fed to raise interest rates in July and rate cuts starting later than originally planned.

“We expect the incoming data overall to strengthen the case made by FOMC participants for further monetary policy tightening,” Pingle wrote in a note last week. “We think the slow progress in core inflation and no slowing in trend employment gains will erode the case against further tightening.”

Away from the economic calendar this week, investors will continue to watch the market march higher even though the corporate calendar will provide little catalyst.

Earnings from Oracle (ORCL), Adobe (ADBE), Kroger (KR), and Lennar (LEN) will be the only notable earnings reports for the week.

“We believe we are back in bullish territory, which could be part of what it takes to restore investors’ enthusiasm for equities,” Savita Subramanian and the Bank of America Global Research in a note.

“Sentiment, positioning, fundamentals and supply and demand support that being underinvested in equities and cyclicals remains the top risk today – the most likely direction surprise is always positive.”

Weekly schedule


Economic data : No notable economic news.

Earnings: Oracle (ORCL)


Economic data : NFIB Small Business Optimism, May (88.5 expected, 89 previously); Consumer price index, month on month, May (+0.2% expected, +0.4% previously); CPI, year-on-year, May (+4.1% expected; +4.9% previously); Core CPI, month on month, May (+0.4% expected; +0.4% previously); Core CPI, year-on-year, May (+5.2% expected; +5.5% previously)

Earnings: No notable gains.


Economic data : MBA Weekly Mortgage Applications (-1.4% previously); PPI, month over month, May (-0.1% expected, +0.3% previously); PPI, year-on-year, May (+1.5% expected; +2.3% previously); Core PPI, month on month, May (+0.2% expected, +0.2% previously); Core PPI, year-on-year, April (+2.9% expected; +3.2% previously); FOMC decision on interest rates (5% to 5.25% expected, 5% to 5.25% previously)

Earnings: Lennar (LEN)


Economic data : Initial unemployment registrations (250,000 expected, 261,000 previously); Continuing Claims (previously 1.76 million); Retail sales, month on month, May (-0.1% expected, +0.4% previously); Retail sales excluding autos and petrol, month-on-month, May (+0.1% expected, +0.4% previously); Import price index, month on month, May (-0.6% expected, +0.4% previously); Export Price Index, month-over-month, May (-0.3% expected, +0.2% previously)

Earnings: Adobe (ADBE), Kroger (KR)


Economic data : University of Michigan Sentiment, June Preliminary (60.5 expected, 59.2 previously)

Earnings: No notable gains.

Josh is a reporter for Yahoo Finance.

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