Last week, the stock market demonstrated a downturn following a significant sell-off in the technology sector, leading to a 1% fall in the Nasdaq Composite (^IXIC). However, the S&P 500’s equal-weighted index managed to record a growth for the seventh consecutive week, underlining investors’ interest in stocks beyond the usual “Magnificent Seven” tech leaders for the forthcoming market rally.
The critical test for investors in the upcoming week will be Federal Reserve’s meeting on March 20. Significantly, this meeting will be preceded by the Consumer Price Index (CPI) report for February, scheduled to be released on Tuesday. This report is especially important as it provides an updated picture of inflation. Retail sales and consumer morale reports, to be released later in the week, will also play a vital role in understanding the economic situation.
In terms of earnings, a lighter week is ahead, with Dollar Tree (DLTR), Dollar General (DG), Dick’s Sporting Goods (DKS), Adobe (ADBE), and Ulta Beauty (ULTA) being the notable companies due to present their quarterly reports.
Jerome Powell, the Federal Reserve Chair, has repeatedly maintained that the bank wants to be more ‘confident’ about the reducing trajectory of inflation before contemplating any cuts in interest rates. The CPI reading scheduled for Tuesday comes in the wake of the January report which exceeded expectations and indicated a potentially uneven slowdown of inflation, leading investors to expect fewer interest rate cuts this year.
Furthermore, the Wall Street estimates suggest that headline inflation will maintain its annual gain of 3.1%, the same as January’s figure. However, monthly prices are predicted to increase by 0.4%, a slight uplift from January’s 0.3% rise.
February’s ‘core’ inflation, excluding food and energy, is expected to have seen a 3.7% year-over-year increase, down from 3.9% in January.
Recent research by Wells Fargo’s team of economists indicates that, despite the strong start to the year, the trend of disinflation seems to remain robust. While inflation continues to be higher than expected, there isn’t a strengthening underlying trend.
The retail sector suffered its steepest slump in sales since March 2023 in January. However, economists predict a reversal of this trend in February, with retail sales expected to have achieved a growth of 0.8%.
Finally, market activity following last Friday’s jobs report unveiled a marked shift in trading action. Notably, a divergence in the performance of Apple and Tesla among the Magnificent Seven has emerged, which is likely to cause a broadening of the market rally.
Recent observations also reveal that fewer companies are mentioning the prospect of a recession. This indicates that an increasing number of businesses remain optimistic about the robustness of the US economy’s health, which is backed up by increasing earnings estimates for stocks outside the technology leaders.
In conclusion, the week ahead offers several critical releases and events that will undoubtedly shape the direction of the stock market, promising to make it an interesting period for investors. Owing to a focus on inflation and interest rates, this offers an opportunity for the market to broaden and diversify beyond the tech leaders providing optimism for continued strength in the US economy.
Vocabulary List:
- downturn (noun): A decline or decreaseespecially in economic activity.
- sell-off (noun): A sale of securitiesreal estateor other assets.
- composite (noun): Made up of various parts or elements.
- consecutive (adjective): Following continuously in unbroken or logical sequence.
- trajectory (noun): The path followed by a projectile or an object moving under the action of given forces.
- robust (adjective): Strong and healthy vigorous.
