In the upcoming trading week, stock market bulls are gearing up for a challenge as the Federal Reserve’s preferred inflation measure takes center stage. The focus will be on the release of the Personal Consumption Expenditures (PCE), specifically October’s “core” PCE inflation, which economists anticipate rose by 3.5% annually last month.
As investors navigate the economic landscape, they will also be tracking updates on manufacturing activity, consumer confidence, and home prices throughout the week. On the corporate front, the spotlight will be on quarterly reports from major players such as Salesforce (CRM), Snowflake (SNOW), Okta (OKTA), Dollar Tree (DLTR), Foot Locker (FL), Kroger (KR), and Ulta Beauty (ULTA).
The stock market closed the previous week on a positive note, with all three major averages experiencing gains of approximately 1% over the holiday-shortened trading period. Notable events driving market attention included the leadership developments at OpenAI and Nvidia’s (NVDA) latest quarterly report.
Looking ahead, the week poses a critical test for the current market sentiment. Stocks are on track for their most substantial monthly gain in over a year, and the upcoming inflation reading on Thursday will play a pivotal role in determining whether the narrative of a “soft landing” for the U.S. economy holds true. A soft landing scenario envisions inflation easing to the central bank’s 2% target without triggering a severe economic downturn.
Recent economic data has aligned with this optimistic trajectory, fueling rallies in previously struggling sectors of the stock market, such as small-cap stocks and meme stocks. As a result, market expectations for further Federal Reserve rate hikes have dwindled, with a mere 12% chance priced in, according to data from the CME Group.
Economists project that the annual inflation rate, as per October’s “core” PCE inflation reached 3.5%. While this represents a notable increase, the 0.2% monthly rise is seen as a potential stabilizer, bringing the 3- and 6-month annualized gains closer to the Fed’s 2% target. JPMorgan’s chief U.S. economist, Michael Feroli, suggests that the Federal Reserve may hold its current policy stance, anticipating a potential shift towards easier policy in the third quarter of 2024.
Earlier this month, a surge in stocks and a rally in bonds, accompanied by lower yields, followed the release of October’s Consumer Price Index, indicating a continued slowdown in inflation.
On the corporate front, quarterly results from Foot Locker, Ulta Beauty, Dollar Tree, and others will be closely watched for insights into holiday season forecasts and observations on consumer behavior in the face of elevated interest rates and a softening labor market.
Salesforce’s guidance for the current quarter will be under the microscope, particularly for indications of customer responses to price increases and demand for AI products. Similar themes are expected from results of Workday, Intuit, Snowflake, and Okta.
The economic calendar for the week includes key data releases, such as new home sales, consumer confidence, Case-Shiller home price indices, and the final estimate of third-quarter GDP. Additionally, a slew of earnings reports is expected from companies like Zscaler, CrowdStrike, Hewlett Packard Enterprise, Five Below, Hormel Foods, and more.
Investors will closely monitor economic indicators and corporate updates throughout the week, seeking insights into the trajectory of inflation, consumer behavior, and the overall health of the U.S. economy.
Source: Yahoo Finance
