Inflation data commands center stage next week and provides a test for the market rally
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All three major U.S. stock indexes closed higher for the week, led by the Dow Jones Industrial Average . The blue-chip gauge rose 2.16% and extended its winning streak to eight sessions. The Nasdaq Composite added 1.14% while the S & P 500 advanced 1.85% in a relatively quiet week of economic updates. All 11 sectors in the S & P 500 closed higher, with utilities leading the way, up 4.03%. Financials and materials captured the second and third spots, rising 3.07% and 2.58%, respectively. The S & P 500 is up more than 5% since April 19 and now sits 0.6% below its record high set on March 28. Earnings drove the action on Wall Street this week. Within the portfolio, Disney and Wynn Resorts released quarterly numbers; we took issue with the stock reaction to both reports. We’ve now heard from 92% of S & P 500 companies this earnings season. Of the companies that have already reported, 78% delivered a positive earnings surprise and 59% posted a positive sales surprise. We remain generally positive on the market, particularly given the recent move higher has been broad based , as Jim Cramer mentioned on Friday’s Morning Meeting . At the same time, we haven’t lost sight of the fact the S & P Short Range Oscillator is in overbought territory, requiring us to proceed with caution because it suggests a near-term pullback may be on the horizon. It also raises the stakes around major economic releases, such as next week’s consumer inflation report. The S & P Oscillator entered Friday’s session at 6.6%, solidly above the 4% threshold for overbought conditions. That helps explains why on Friday we trimmed our position in Procter & Gamble , which finished at the week at a record of $166.85 per share. The oscillator, Jim’s longtime trusted momentum indicator, ended Friday at 5.84%. In the week ahead, earnings season continues — headlined by Walmart on Thursday — and inflation data will dominate the economic calendar. Economy: The big economic release of the week is the April consumer price index report Wednesday. For the CPI report, Wall Street is looking for a 3.4% year-over-year increase at the headline level and a 3.6% advance at the core level, which strips out the volatile food and energy categories, according to Dow Jones estimates. In March, headline CPI rose 3.5% on an annual basis while core was up 3.8%. The market is hyper-focused on inflation, perhaps even more so than in the recent past. The reason is the rate of inflation has proven very sticky above the Federal Reserve’s 2% target at a time when the economy is showing signs of slowing. As a result, we want to see another leg lower in inflation so the Fed has data that supports a cut in interest rates before U.S. economic growth fades even further. As of Friday, the market is pricing in a roughly 35% likelihood of one rate cut by year-end and a 35% chance of two, per the CME’s FedWatch Tool . At the start of the year, the market was pricing in around six cuts. A day before the CPI, we’ll get the April producer price index, which measures wholesale inflation levels. Core CPI carries more weight on Wall Street because it’s more on par with the Fed’s preferred inflation gauge, known as the core PCE price index. However, the PPI is still firmly on investors’ radar because it provides insight into input costs, which will factor into pricing decisions from corporations in the future. We want it to come in below expectations, as well. Economists polled by Dow Jones are looking for a 0.3% month-over-month increase at the headline level, up from 0.2% in March, and a 0.2% advance at the core level, which would match the March gain. Notable non-inflation reports include the April retail sales report on Wednesday; April housing starts on Thursday; and April industrial production and capacity utilization on Thursday. Retail sales will be a checkup on the health of the consumer during the first month of the second quarter, including which spending categories were resilient and which saw pressure. Housing starts data will shine a light on a market caught between a rock and hard place. On the one hand, an increased supply of single-family homes is necessary to boost affordability . On the other hand, builders aren’t going to be too keen on building new homes given the current affordability issues posed by high interest rates and the impact a slowing economy has on consumer sentiment . Thursday’s industrial production and capacity utilization data will provide insight into the state of manufacturing. Less directly, it also will offer clues on consumer and business demand, with the idea being the more end-market demand there is, the more production and utilization we should see higher up in the supply chain. Earnings: No Club holdings are set to report next week, but we will hear from several companies that can provide valuable insight into the state of the economy and the consumer. Home Depot is set to report on Tuesday. We’ll be listening to management’s comments on the U.S. housing market against the backdrop of “higher for longer” interest rates. The home-improvement retailer also may provide a readthrough to Club holding Stanley Black & Decker . On earnings call, Home Depot executives are known to discuss the performance of do-it-yourself customers — a key cohort for Stanley Black & Decker — and mention some of its tool brands, like DeWalt, as well. Walmart’s fiscal 2025 first-quarter numbers are due out Thursday morning. When a company with Walmart’s scale and diversity of products reports, investors must listen. We are curious to hear where consumers are focusing their buying power — known in retail as “basket mix” —and whether management is observing shoppers trade down to cheaper alternatives given sustained inflation and a slowing economy. Monday, May 13 Before the bell: Legend Biotech Corporation (LEGN), Tencent Music Entertainment Group (TME), Bitfarms (BITF), HUYA (HUYA), Central Puerto S.A. (CEPU), Dingdong (Cayman) Limited (DDL) After the bell: StoneCo (STNE), TeraWulf Inc (WULF), Paysafe Group Holdings Limited (PSFE), QuickLogic Corporation (QUIK), Kopin Corp. (KOPN), Gold Royalty Corp. (GROY), Agilysys Inc (AGYS), Bioceres Crop Solutions Corp. (BIOX), Inovio Biomedical Corp (INO), Vaxart (VXRT), Intercorp Financial Services (IFS), Lithium Americas (Argentina) Corp. (LAAC), Augmedix (AUGX) Tuesday, May 14 Before the bell: Alibaba Group Holding (BABA), Home Depot (HD), Sea Limited (SE), Ocugen (OCGN), Sony Group Corporation (SONY), Intuitive Machines (LUNR), MINISO Group Holding Limited (MNSO), OrganiGram (OGI), Centerra Gold (CGAU), HudBay Minerals (HBM), Autolus Therapeutics plc (AUTL), International Game Technology (IGT), Jack in the Box (JACK) After the bell: Nu Holdings (NU), Nextracker (NXT), Ontrak (OTRK), Dragonfly Energy Holdings Corp. (DFLI), Bakkt Holdings Inc (BKKT), DHT Holdings (DHT), Arcutis Biotherapeutics (ARQT), Canoo (GOEV), Prestige Consumer Healthcare (PBH), Rumble (RUM), SilverCrest Metals (SILV) Wednesday, May 15 Before the bell: monday.com (MNDY), Dynatrace, Inc (DT), Hut 8 Mining Corp. (HUT), Acurx Pharmaceuticals (ACXP), Cresco Labs (CRLBF), Dole plc (DOLE), Arcos Dorados Holdings (ARCO) After the bell: Cisco Systems (CSCO), Grab Holdings Limited (GRAB), Copa Holdings S.A. (CPA), Maxeon Solar Technologies, Ltd (MAXN), Iris Energy Limited (IREN), KORE Group Holdings (KORE), Bit Digital (BTBT), Super League (SLE), Spero Therapeutics (SPRO), ZTO Express (ZTO) Thursday, May 16 8:30 a.m. ET: Initial Jobless Claims Before the bell: Walmart (WMT), Baidu (BIDU), JD.com (JD), Deere & Company (DE), NICE (NICE), Lightspeed Commerce (LSPD), Global Ship Lease (GSL), Under Armour (UAA), Canada Goose Holdings (GOOS), iQIYI (IQ), Advanced Drainage Systems (WMS), Consolidated Water Co. (CWCO), Outlook Therapeutics (OTLK). After the bell: Applied Materials (AMAT), Take-Two Interactive Software (TTWO), Doximity (DOCS), Adecoagro (AGRO), Despegar.com, Corp. (DESP), DXC Technology Company (DXC), Flowers Foods (FLO) Friday, May 17 Before the bell: RBC Bearings Incorporated (RBC), Bruker Corporation (BRKR), H World Group Limited (HTHT) (Jim Cramer’s Charitable Trust is long PG, SWK, DIS and WYNN. See here for a full list of the stocks.) 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A person shops at a Whole Foods grocery store in the Manhattan borough of New York City on March 10, 2022.
Carlo Allegri | Reuters
All three major U.S. stock indexes closed higher for the week, led by the Dow Jones Industrial Average. The blue-chip gauge rose 2.16% and extended its winning streak to eight sessions.
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