We Breakdown The Events Ahead This Week & What Investors Will Be On The Look Out For 👀
Stock Market Soars as Inflation Fears Ease 📈
The stock market ended last week on a high note, with the Nasdaq Composite and S&P 500 both reaching record highs for four straight days. The Dow Jones Industrial Average, however, slid more than 0.7%. The surge in stocks was fueled by softer-than-expected inflation data, which has led to increased optimism among investors about potential interest rate cuts.
Inflation Data Points to Positive Trends 🤝
The May Consumer Price Index (CPI) showed a 0.2% increase in “core” CPI, which excludes volatile food and energy categories. This is the lowest reading since June 2023. Meanwhile, the “core” Producer Price Index (PPI) was unchanged in May, below economists’ expectations for a 0.3% increase. These numbers suggest that inflation is moving in the right direction, and economists believe this could lead to a positive reading of the Fed’s preferred inflation gauge within the Personal Consumption Expenditures (PCE) index later this month.
Economists Weigh in on Interest Rate Cuts ✂️
Bank of America US economist Stephen Juneau believes that the recent inflation data points to a positive reading of the Fed’s preferred inflation gauge and supports his view that “disinflation is the most likely path forward.” He estimates that core PCE increased 0.16% month over month in May. Juneau also believes that the May CPI and PPI data are favorable for his view that the Fed will be reducing its policy rate later this year.
Fed’s Balancing Act ⚖️
While inflation is declining and economic growth is slowing, the Fed sees just one interest rate cut this year. However, a growing number of Wall Street economists are nervous that the central bank may be walking too fine of a line with its most restrictive interest rate policy in more than two decades. The fear is that there are already signs of softening in the economy, like a pickup in the unemployment rate, that could rapidly worsen if the Fed holds rates high for too long.
Retail Sales Report Ahead 👀
This week, investors will be keeping a close eye on the May retail sales report, which is expected to show a 0.3% increase from the prior month. This would mark a rebound in spending after sales unexpectedly came in flat in April. Economists believe that consumption is headed for a more modest pace of growth in the second half of the year, citing factors such as a lower personal saving rate, slower consumer credit growth, and fading real disposable income growth.
Bull Market Tailwind Returns 🐂
The latest inflation data may add fuel to the current stock market rally, with the S&P 500 and Nasdaq hitting four straight record closes last week. Investors are optimistic about potential interest rate cuts, despite the median forecast from Federal Reserve officials favoring one cut in its Summary of Economic Projections (SEP) on June 12.
Weekly Calendar 📅
Here’s a look at the economic data and earnings reports scheduled for this week:
Monday: Empire manufacturing, Lennar (LEN) earnings
Tuesday: Retail sales, industrial production, KB Home (KBH) earnings
Wednesday: Markets closed for Juneteenth holiday
Thursday: Initial jobless claims, housing starts, building permits, Philadelphia Business Outlook, Accenture (ACN) and Kroger (KR) earnings
Friday: Leading index, S&P Global US manufacturing PMI, S&P Global US services PMI, S&P Global US composite PMI, CarMax (KMX) and FactSet (FDS) earnings
