The financial market has seen a significant rally in the past week, with the Nasdaq Composite rising just under 1% and the S&P 500 popping almost 2%. The Dow Jones Industrial Average also rose more than 2% and has closed higher for eight straight sessions.
In the week ahead, investors are keenly awaiting the April inflation reading and an update on retail sales. Initial jobless claims will also be in focus after the weekly data set hit a surprise nine-month high in the first week of May.
On the corporate side, Walmart, Home Depot, and Alibaba lead a quieter week of quarterly reports as earnings season slows down.
Inflation reports for the first quarter were stickier than expected, prompting investors to scale back expectations for Federal Reserve interest rate cuts in 2024. However, the April Consumer Price Index (CPI) is expected to show an annual gain of 3.4% for headline CPI, a decrease from the 3.5% headline number in March.
On a “core” basis, inflation is expected to have risen 3.6% year over year, a slowdown from the 3.8% increase seen in March. Morgan Stanley’s economics team believes inflation’s descent “begins” with the April CPI report, led by easing price pressures in car insurance, rent, and healthcare.
Entering the week, markets are currently pricing in less than two interest rate cuts this year. With the Fed holding interest rates high for longer, economists continue to watch closely for any signs that the resilience in consumer spending is dwindling.
A fresh reading on that trend is set to greet investors on Wednesday with the April retail sales report. Economists expect that retail sales increased 0.4% in April from the prior month, down from a 0.7% increase seen in March.
Investors will also be closely watching results from Home Depot and Walmart for signs of how the US consumer is holding up. Thus far, results from corporates have provided mixed results on how Americans are spending.
In conclusion, the financial market is in a state of flux, with inflation, consumer spending, and market trends all playing a significant role in shaping the economic landscape. Investors and economists alike will be closely watching the developments in the coming week.
