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What to Know This Week as Stocks Enter Reduced Trading Week Near Record Highs

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Because of less-than-expected inflation figures that gave investors hope for future interest rate reductions, stocks finished the week strongly. More than 3% of the Nasdaq Composite (^IXIC) and about 1.5% of the S&P 500 (\GSPC) rose, ending above 5,400 for the first time. Record highs were reached by both indexes for four days in a row. The Dow Jones Industrial Average (^DJI), on the other hand, fell by more than 0.7%.

Expected Silence Ahead of the Economic Storm

It is anticipated that this week will be calmer, with no significant company announcements anticipated. Along with reports on the industrial and services sectors and the weekly jobless claims statistics, attention will turn to the May retail sales report. Notably, in honor of the Juneteenth holiday, markets will be closed on Wednesday.

Inflation Is Beginning to Decline

With volatile food and energy costs removed, the Consumer Price Index (CPI) for May showed a 0.2% month-over-month increase in “core” CPI, the lowest reading since June 2023. In a similar vein, the Producer Price Index (PPI) “core” decreased from the previous month’s 0.3% increase to stay the same. The Personal Consumption Expenditures (PCE) index, the Fed’s favored inflation gauge, is projected to show positive trends later this month, based on these signs.

“Disinflation is the most likely path forward,” according to recent PPI data, according to US economist Stephen Juneau of Bank of America. He predicted a “A+ report” for May’s core PCE. Core PCE is expected to climb by a mild 0.16% in May compared to April, according to BofA projections.

According to Juneau, “The May CPI and PPI data greatly reduce the likelihood of the Fed raising rates, although an easing cycle might begin in September if shelter inflation continues to moderate.”

Act to Balance the Federal Reserve

There will only be one interest rate drop this year, according to the Federal Reserve, despite falling inflation and slower economic growth. Some Wall Street analysts are uneasy about this cautious approach because they believe that keeping interest rates high for an extended period of time may worsen indicators of an economic slowdown, such growing unemployment.

On Thursday, the inaugural weekly unemployment claims report will be released, and it will be widely monitored. According to figures released this week, claims unexpectedly hit a 10-month high of 242,000. Mohamed El-Erian, chief economic adviser at Allianz, raised worries that if rate reduction are postponed until December, the Fed may move “too late.”

Head of Economics at Renaissance Macro Neil Dutta thinks more deflation is probable and thinks the Fed should modify its language accordingly. Writing that “unemployment is up and core inflation is down,” Dutta emphasized that the Fed has to “stick the landing” and change course on policy.

Radar’s Retail Sales Report

Key information on consumer resilience in the face of rising interest rates will be revealed on Tuesday in the retail sales data for May. Retail sales are expected to rise by 0.3% from the previous month, according to economists, suggesting that things may be improving following April’s lackluster showing.

Leading Wells Fargo economist Jay Bryson issues a warning, speculating that the second half of the year may see a slowdown in consumer spending. They draw attention to elements including a declining personal savings rate, slower expansion of consumer credit, and diminishing real disposable income in the context of a cooling labor market.

Momentum in the Bull Market

The current surge in the stock market has been supported by recent positive inflation figures. According to Julian Emanuel of Evercore ISI, the bull market is still mostly driven by declining inflation. The S&P 500 and Nasdaq reached new highs last week, which were ascribed to optimism about weaker inflation data and potential interest rate reductions.

Jonathan Golub, chief US equities strategist at UBS Investment Bank, feels that the most recent inflation figures “provide the potential for even greater upside” to his year-end projection. Golub has one of the highest S&P 500 year-end forecasts on Wall Street, at 5,600.

Economic Calendar Highlights

Monday:

– Economic data: Empire manufacturing index for June (-13 expected, -15.6 prior)

– Earnings: Lennar (LEN)

Tuesday:

– Economic data: May retail sales (0.3% increase expected), Retail sales excluding auto and gas (0.3% expected), May industrial production (0.4% increase expected)

– Earnings: KB Home (KBH)

Wednesday:

– Markets closed for the Juneteenth holiday

Thursday:

– Economic data: Initial jobless claims, May housing starts (1.1% increase expected), May building permits (1.4% increase expected), Philadelphia Business Outlook for June (4.5 expected), April import prices (0.2% increase expected)

– Earnings: Accenture (ACN), Kroger (KR)

Friday:

– Economic data: May leading index (-0.3% expected), June preliminary S&P Global US manufacturing PMI (51 expected), June preliminary S&P Global US services PMI (53.4 expected)

– Earnings: CarMax (KMX), FactSet (FDS)

As the trading week unfolds, investors will keep a close eye on these economic indicators to gauge the market’s direction and the Federal Reserve’s potential policy adjustments.


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