US Markets tumbled on Friday, reversing much of the gains made earlier in the week, due to a strong labor market and higher-than-expected inflation, which has made participants fear future earnings expectations.
Wall Street Investors believe that the Fed will use the proof of the strong labor market and higher inflation as signs to continue to hike rates aggressively into a severe recession. For the week, the Dow rose 2%, the S&P climbed 1.5%, and the Nasdaq rose 0.75%.
The week ahead is packed with earnings and economic data, including inflation reports, retail sales data, and consumer confidence, which will help investors understand where market indices are headed next.
Inflation Data
The week ahead is packed with key inflation data, both tracking consumer and producer price changes. The Bureau of Labor Statistics is to release the Producer Price Index (PPI) for the month of September, which will track inflation from the business. Consensus forecasts show that prices may have Rosen by 0.2% compared to August.Annual PPI has been coming down in recent monthsfrom 11.7% in March to 8.7% in August as a result of lower oil prices and discretionary spending from households.
US Annual CPI Data, Source: Trading Economics
On the other hand, the widely anticipated Consumer Price Index (CPI), tracking consumer inflation, is set to be released on Thursday and should moderate to 8.1% annually. CPI has also been falling gradually from a 40-year high of 9.1% in June to 8.3% in August as consumers pull back on spending. If inflation continues to trend in the right direction, both for consumers and producers, the Fed may be incentivized to slow down on the pace of rate hikes.
Retail Sales
Another piece of the puzzle that will help explain the state of the economy is retail sales, which will track household spending for the month of September. The US Census Bureau is set to release the data on Friday, with analyst consensus showing that sales will rise 0.2% month-over-month, compared to an increase of 0.3% seen in August.
US Retail Sales Growth Month-Over-Month, Source:TradingEconomics
Retail sales growth has sharply dropped off since peaking at 2.7% in January, but a reversal in the trend could provide the Fed with more room to increase rates, further denting investor confidence.
Bank Earnings
The week ahead will kick off the corporate earnings season with reports from banks and financial institutions. This includes companies like BlackRock, Citigroup, JPMorgan Chase, Morgan Stanley, and Wells Fargo.
Analysts are predicting banking stocks to rebound due to a favorable operating environment with higher interest income, but increased credit card spending and higher mortgage rates could eventually lead to more defaults, which could lead to weakness in future earnings.
S&P 500 Chart
S&P 500 Chart, Source:TradingViewBottom Line
The week ahead is packed with economic data, including consumer and producer inflation, retail sales, which will track household spending, and earnings from banks which will further show the strength of the economy and where stocks may be headed next.
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