News
What to know this week
Actions got together during a quiet week for Wall Street economic data.
The Nasdaq composite (^IXIC) rose just under 1%, while the S&P 500 (^GSPC) exploded by almost 2%. The S&P 500 ended Friday above 5,200 for the first time since early April. Meanwhile, the Dow Jones Industrial Average (^DJI) rose more than 2% for the week and closed higher for eight consecutive sessions.
Next week, a crucial April inflation reading and an update on retail sales will highlight the economic calendar. Initial jobless claims will also be in focus after the weekly data set reached a surprising nine-month high in the first week of May.
On the corporate side, Walmart (WMT), HomeDepot (High definition) and Alibaba (NANNY) lead a quieter week of quarterly reports as earnings season slows.
Price check
Stickier-than-expected inflation reports was the headline of the first quarter of economic data, prompting investors to scale back expectations for Federal Reserve interest rate cuts in 2024.
On Wednesday, investors will see for the first time whether this trend continued into the second quarter with the release of the April Consumer Price Index (CPI). Wall Street expects a 3.4% annual gain for the core CPI, which includes food and energy prices, a drop from the previous year. Headline number of 3.5% in March. Prices are expected to rise 0.4% month-on-month, in line with the increase in March.
On a “core” basis, which excludes food and energy prices, inflation is expected to have increased 3.6% year over year, a slowdown from the 3.8% increase seen in March. Monthly increases are expected of basic prices are 0.3%, below the 0.4% of the previous month.
Morgan Stanley’s economics team, led by Ellen Zentner, wrote in a research note that it believes the decline in inflation “starts” with the April CPI report, led by reduced pressures on car insurance, rental and care prices. of health. This, Zentner’s team argues, could sustain three Fed interest rate cuts this year.
“Weaker monthly prints ahead with faster disinflation starting in [the second half of 2024] provides the Fed with much-needed confidence that inflation is on a sustained path toward the target,” the Morgan Stanley team wrote.
This would likely be a welcome sign for markets, according to Fundstrat head of research Tom Lee.
“We think the April CPI could increase the number of Fed cuts [priced into the market],” Lee wrote in a note to customers on Friday. That, Lee said, would be “positive for stocks.”
At the start of the week, markets are currently pricing in fewer than two interest rate cuts this year, according to Bloomberg Data.
The story continues
Retail Reading
With the Fed keeping interest rates high for longer, economists continue to watch closely for any signs that consumer resilience spending is decreasing.
A new reading on this trend is expected to greet investors on Wednesday with the April retail sales report. Economists expect retail sales to rise 0.4% in April from the previous month, below the 0.7% increase seen in March.
Investors will also be closely watching earnings from Home Depot (Tuesday) and Walmart (Thursday) for signs of how the American consumer is behaving. Until now, company results have provided mixed results on how Americans are spending.
“Spending data continued to surprise on the upside, but we have a sense that households are increasingly prioritizing purchases,” the Wells Fargo economist team wrote in a weekly research note. “Although volatile and non-discretionary categories outpaced discretionary categories in trend last year. Industry commentary included in first-quarter earnings releases also emphasized a decline in the value-seeking consumer.”
Customers purchase vegetables at the Walmart Supercenter in North Bergen, Thursday, Feb. 9, 2023, in New Jersey. (AP Photo/Eduardo Munoz Alvarez) (ASSOCIATED PRESS)
Earnings Update
With 92% of the S&P 500 reporting first-quarter earnings, the index is on track for its biggest year-over-year earnings growth since the second quarter of 2022. As of Friday afternoon, the S&P 500 was on track for earnings growth 5.4% in the first quarter, notably above the 3.2% expected for bank profits at the beginning of April.
FactSet senior earnings analyst John Butters points out that the index is actually doing even better by removing a huge earnings loss from just one company. Bristol-Meyers Squibb (BMI) reported a loss in the first quarter, hurting the overall performance of the S&P 500 this quarter. Excluding the healthcare company, the S&P 500 is on track for growth of 8.3%, according to Butters.
Stocks Aren’t Applauding Hot Data
Since inflation began to soar in 2021, the stock market has struggled with how it reacts to economic data. And this continues in 2024.
In a weekly note to clients, Citi U.S. equity strategist Scott Chronert examined how stocks are reacting to more positive-than-expected economic data. Investors began the year applauding the data as it predicted a “soft landing” for the US economy, where inflation would return to the Fed’s 2% target without an economic recession. At that time, the S&P 500 rose along with the Citi Economic Surprise Index, which assesses whether data is coming in better than consensus expectations.
But after recent high inflation data, markets have been more nervous as investors increasingly priced in “no landing”, where inflation does not reach the Fed’s target, but the economy continues to grow.
This led the market to consider good economic news as bad news for inflation and therefore bad for market rate reduction hopes. Subsequently, the correlation between the S&P 500 and economic surprise headed into negative territory.
“This suggests that hot macroeconomic data has increasingly threatened the soft landing narrative that may be needed to push markets above these lofty valuation levels,” Chronert wrote.
If inflation data shows a new slowdown, the question is whether the good news about economic growth will once again be welcomed by the market.
Weekly Calendar
Monday
Economic data: New York Fed One-Year Inflation Expectations, April (3% previously)
Earnings: BuzzFeed (BZFD), Petrobras (PBR), Stone (STNE), Tencent Music Entertainment (TME)
Tuesday
Economic data: NFIB Small Business Optimism, April (88.2 expected, 88.5 previously); Producer Price Index, month over month, April (+0.3% expected, +0.2% previously); PPI, year-over-year, April (+2.2% expected, 2.1% previously)
Earnings: Alibaba (NANNY), HomeDepot (High definition), Canoo (GOEV), Bang (RUM), Sony (SONY),
Wednesday
Economic data: Consumer Price Index, month over month, April (+0.4% expected, +0.4% previously); Core CPI, month-over-month, April (+0.3% expected, +0.4% previously); CPI, year-over-year, April (+3.4% expected, +3.5% previously); Core CPI, year-over-year, April (+3.6% expected, +3.8% previously); Average real hourly earnings, year on year, April (+0.6% previously); MBA Mortgage Applications, week ending May 10 (+2.6%); Retail sales, month-over-month, April (+0.4%% expected, +0.7% previously); Retail sales excluding autos and gas, April (+0.1% expected, +1% previously); NAHB Housing Market Index, May (51 expected, 51 previously)
Earnings: Cisco (CSCO), Dole (DOLE), Monday.com (MNDY), Super League (LES)
Thursday
Economic data: Initial unemployment claims, week ending May 11 (previously 233,000); Housing begins month-to-month, April (8.6% expected, -14.7% previous); Month-over-month building permits, April (+1.6% expected, -3.7% previous); Philadelphia Business Outlook, May (8.7 expected, 15.5 previous); Import prices, month-on-month, April (+0.2% expected, +0.4% previously); Export prices, month-on-month, April (+0.2% expected, +0.3% previously); Industrial production, month-on-month, April (+0.2% expected, +0.4% previously)
Earnings: Wal-Mart (WMT), Applied Materials (LOVE), Baidu (BIDU), JD. with (J.D.), John Deere (IN), Take-Two interactive (TWO), Under Armor (UAA)
Friday
Economic data: Main index, April (-0.2% expected, -0.3% previously)
Earnings: No notable gains.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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