Week Ahead on Wall Street: Inflation Watch

Confidence to Cut

This week might just be the most important data week of the whole month. A bunch of inflation data is due to drop, and as you know the Federal Reserve cares about it. A lot.

The Fed calibrates interest rate policy to meet its dual mandate – stable prices (i.e. stable inflation) and maximum employment – which is why this data is so important. And considering the influence interest rates can have on asset valuations, what the Fed cares about is what markets care about. Employment and price data have continued to jerk investors around, keeping interest rate volatility elevated this year. Rate cut expectations for the year have ranged from as many as seven in mid-January, to as few as three in late-February. Expectations have since risen to four but could see some more volatility this week as investors digest the data, especially in light of the uptick in unemployment we saw in last week’s February jobs report.

There’s a bit of a wrinkle though: The Fed entered its communication blackout period over the weekend, which means we won’t get any idea of how officials feel about the data until the next FOMC meeting later this month. There are two opposite interpretations for how the blackout can affect market pricing. One view is that there has been almost too much fedspeak, with the cacophony of views from different officials possibly confusing investors and increasing volatility. The other is that the lack of feedback from officials on this week’s data, could possibly amplify volatility.

Last week, Fed Chair Jerome Powell indicated that while officials did not have confidence to begin cutting rates yet, he indicated we’re not far from that point. Investors hope that day comes sooner rather than later.

Economic and Earnings Calendar

Monday

•   February New York Fed Survey of Consumer Expectations: This is a measure of peoples’ expectations for inflation, jobs prospects, earnings growth, and more.

•   Earnings: Oracle (ORCL)

Tuesday

•   February Consumer Price Index: The CPI is one of the most popular indicators for tracking consumer price trends and is a marquee release for market watchers. CPI has come down notably from its peak in 2022 but remains somewhat above pre-pandemic levels.

•   February NFIB Small Business Optimism: This measures how small business owners feel about current and future economic conditions.

•   Earnings: Archer-Daniels-Midland (ADM)

Wednesday

•   Weekly Mortgage Applications: Mortgage activity gives insight on demand conditions in the housing market.

•   Earnings: Dollar Tree (DLTR), Lennar (LEN)

Thursday

•   February Producer Price Index: The PPI tracks price trends that producers face and is down significantly from its peak earlier in the cycle.

•   February Retail Sales: This is a key indicator of consumer demand.

•   Weekly Jobless Claims This high frequency labor market data gives insight into filings for unemployment benefits. Jobless claims have continued to show a labor market that remains strong despite having cooled.

•   Earnings: Adobe (ADBE), Dollar General (DG), Ulta Beauty (ULTA)

Friday

•   February Industrial Production and Capacity Utilization: The industrial sector accounts for much of the cyclical swings in economic activity.

•   March University of Michigan Consumer Sentiment: How consumers feel about economic conditions may affect their spending habits. This survey places a particular focus on inflation and its trajectory.

•   Earnings: Jabil (JBL)

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