Stocks concluded last week on a hot streak as softer-than-expected inflation data fueled investor optimism around interest rate cuts. The Nasdaq Composite rose more than 3% while the S&P 500 popped nearly 1.5%, with the S&P 500 ending the week above 5,400 for the first time ever. The Nasdaq and S&P 500 both closed at record highs for four straight days, while the Dow Jones Industrial Average slid more than 0.7%.
Looking ahead, investors can expect a quieter week with no major corporate news expected. The May retail sales report will be a key focus on the economic calendar, along with updates on activity in the manufacturing and services sectors, as well as weekly jobless claims. Markets will also be closed on Wednesday for the Juneteenth holiday.
The latest inflation data, including the May Consumer Price Index (CPI) and Producer Price Index (PPI), showed signs of disinflation, leading economists to believe that the Fed’s preferred inflation gauge within the Personal Consumption Expenditures (PCE) index will be positive later this month. Bank of America US economist Stephen Juneau wrote that recent inflation data supports the view that the Fed will be reducing its policy rate later this year.
However, there are growing concerns among Wall Street economists that the Fed may be walking too fine of a line with its current interest rate policy. With signs of softening in the economy, such as a pickup in the unemployment rate, some economists fear that waiting too long to cut rates could worsen the economic outlook. Investors will closely watch the initial weekly jobless claims release on Thursday morning for further insights.
The retail sales report for May will also be closely watched to gauge how consumers are holding up amid higher rates. Economists expect a modest increase in retail sales, but there are concerns about mounting headwinds that could weigh on spending in the coming months.
Despite these challenges, the latest inflation data may provide a tailwind for the stock market rally. Inflation falling continues to be a primary factor behind the bull market in stocks, with investors remaining optimistic about potential interest rate cuts. UBS Investment Bank’s chief US equity strategist Jonathan Golub believes that this week’s inflation data could provide even greater upside to his year-end outlook for the S&P 500.
Overall, investors will be keeping a close eye on economic data releases throughout the week, including the retail sales report, jobless claims, and other key indicators. The stock market’s reaction to these data points will provide further insights into the current economic environment and the potential for future interest rate cuts.
