Inflation data in the week ahead could determine whether a stock market that surged to all-time highs after Donald Trump ‘s decisive victory can continue to push higher. The October consumer and producer prices data are set to release Wednesday and Thursday, respectively, right after the Federal Reserve cut interest rates this week by a quarter percentage point in what was a widely anticipated move. A cooler inflation print that confirms the central bank can continue its easing cycle will support a stock market that’s been on a tear, in part because of stabilizing prices and a somewhat softening labor market. On the other hand, a hotter number that threatens that narrative could upend those gains. “One of the legs of the stool that the market sits on right now at this level is the fact that the Fed is cutting rates,” said Art Hogan, chief market strategist at B. Riley Wealth Management. “And I would certainly say anything that changes that opinion could certainly tip the apple cart over.” .SPX 5D mountain S & P 500, over five days For the moment, investors are optimistic the Fed is on pace to get back to neutral, meaning the Fed funds target rate will return to a level that is neither expansionary nor contractionary for the economy. Markets are currently pricing in a 64% likelihood the Fed will lower rates by another quarter point in December, according to the CME FedWatch Tool . The overnight lending rate is expected to end 2025 somewhere between 3.5% and 4%, down from the 4.5% to 4.75% range where it sits currently. Key inflation When it comes to economist projections, at least, the consumer price index (CPI) next week should give investors little reason to change their outlook on interest rates, though concerns linger. The October CPI is set to have risen 0.2% on a month-over-month basis, the same as in the prior month, according to economists polled by FactSet. On a yearly basis, it’s expected to have ticked higher by 2.5%, up from 2.4% in the previous reading. Core inflation, which excludes volatile food and energy prices, is expected to have held steady at 0.3% and 3.3% on a monthly and yearly basis, respectively. Meanwhile, the October producer price index, which excludes shelter, is set to have risen 0.3% last month, consensus estimates show, up from a 0.0% reading the prior month. On a yearly basis, it’s expected to have risen by 2.3%, up from 1.8% previously. “We’ve been concerned that inflation is sticky, and likely to creep back up due to base effects and shelter,” said Nancy Tengler, chief executive of Laffer Tengler Investments. “And I think that’s because the market expects for interest rates to be higher for longer.” ‘Trump trade’ Of course, there seems to be little that can get in the way of the equity rally as of late, with the “Trump trade” leading to investor euphoria in broad swaths of the market. This week, the Dow Jones Industrial Average topped 44,000 for the first time ever , and both it and the S & P 500 were each on pace for their best weeks in a year. The Nasdaq Composite is on pace to close the week out with strong gains. Financial stocks have surged on promises of lower corporate taxes, as did stocks in the biotech sector that could see a rise in merger and acquisition activity. Bitcoin surged , gold faltered . Small caps rallied . Oil stocks rebounded, and renewable energy tumbled. China-exposed stocks dropped. Even with this surge, many investors continue to be bullish on the market because of a strong fundamental backdrop. Investors are wrapping up an upbeat third-quarter reporting season, with roughly 74% of the 450 S & P 500 companies that have reported thus far posting positive surprises, according to FactSet data. The U.S. economy is robust, with the Atlanta Fed projecting real GDP growth 2.5% in the fourth quarter. Markets even absorbed a surge in bond yields, with the 10-year Treasury yield appearing to calm down at the tail-end of this week, below 4.5%. US10Y 5D mountain U.S. 10-year Treasury yield Even so, there are concerns including a lack of clarity yet on the control of Congress, which could determine whether tax cuts will be extended past 2025. Investors are also considering whether the tariffs proposed by the president-elect could be inflationary, and if the promise of mass deportation of undocumented immigrants will hurt domestic productivity. “For the time being, it appears as if the markets have been able to sort of focus on the positive implications of this new administration,” Hogan said. “And whistle by the grave on the potential negatives.” Week ahead calendar All times ET. Monday, Nov. 11 No notable events. Tuesday, Nov. 12 6 a.m. NFIB Small Business Index (October) 5 p.m. Philadelphia Reserve Bank President Harker speaks at Carnegie Mellon University Earnings: Occidental Petroleum , Live Nation Entertainment , Tyson Foods , Home Depot , Mosaic Wednesday, Nov. 13 8:30 a.m. Consumer Price Index (October) 8:30 a.m. Hourly Earnings final (October) 8:30 a.m. Average Workweek final (October) 2 p.m. Treasury Budget NSA (October) Earnings: Cisco Systems Thursday, Nov. 14 8:30 a.m. Continuing Jobless Claims (11/02) 8:30 a.m. Initial Claims (11/09) 8:30 a.m. Producer Price Index (October) Earnings: Applied Materials , Walt Disney Friday, Nov. 15 8:30 a.m. Export Price Index (October) 8:30 a.m. Import Price Index (October) 8:30 a.m. Empire State Index (November) 8:30 a.m. Retail Sales (October) 9:15 a.m. Capacity Utilization (October) 9:15 a.m. Industrial Production (October) 9:15 a.m. Manufacturing Production (October) 10 a.m. Business Inventories (September) Earnings: Progressive
Inflation data will be key hurdle to get through next week after stock market’s historic postelection rally
Nov 8, 2024
