Stocks could continue to rise early next week as investors await a major consumer inflation report on Tuesday. The consumer price index for August is one of many reports on a busy economic calendar in the week ahead, but it’s the only final data point that market strategists believe could help determine how much the Federal Reserve will raise interest rates on September 21. Evercore ISI’s Julian Emanuel said the market is bracing for a 75 basis point (or three-quarters) increase in the Fed’s target federal funds rate, which would be the third straight of this size. “Even if the inflation data surprises on the upside, as long as it’s not a material surprise on the upside, the market is likely to ignore that,” said Emanuel, chief strategy officer. equities, derivatives and quantitative at Evercore. “If the inflation data surprises on the downside, which we think it might, then any thought that 75 isn’t an absolutely signed, sealed and delivered deal will be extremely bullish for equities.” Shares jumped on Friday and were higher for the week, snapping a three-week losing streak. The S&P 500 closed at 4,067, gaining 3.6% on the week. The index fell below 3,900 on Tuesday, but reversed and came back above that key level. “We think the price action this week, combined with the bearish sentiment and the prospect of the Fed potentially taking a no-promise pause in 2023, has put a floor under stocks here,” Emanuel said. Emanuel’s view contrasts with some strategists, who believe the market could return to lows or even fall below before the selloff is complete. For example, Guggenheim’s Scott Minerd told CNBC on Thursday that the bear market is still intact and the S&P 500 could drop 20% by mid-October. Minerd, global chief investment officer at Guggenheim, said this could be a buying opportunity if and when the S&P falls to 3,000 to 3,400. Minerd said the central bank may be leaning too far in the direction. warmongering direction. “I think there’s a thought or a fear in the Fed that if it halts or comes to an abrupt halt, it risks blowing up its credibility,” he said. Fed officials have discouraged investors from the idea that they will reverse the upward trend in rates and start cutting rates by the second half of next year. Instead, they pushed the idea that rates will stay higher for longer in order to fight inflation. Inflation print still hot Along with the CPI on Tuesday morning, the PPI inflation reading is due on Wednesday, while retail sales and industrial production reports are out on Thursday. But the CPI could be the key to the trading week. Rob Dent, senior U.S. economist at Nomura, expects core CPI to have risen 0.4% in August, or an annual rate of 6.1%, hotter than the 5-year increase, 9% from July. As for headline inflation, lower gasoline prices should bring that annual pace down to 8% from 8.5% in July, he added. “We think the focus should be on underlying month-to-month inflation,” he said. “It just feels like we’re falling into a period of arm wrestling.” He said that while prices related to the supply chain, such as used vehicles and clothing, are expected to fall, inflation will continue to rise due to rising rent-related components. Dent said the CPI report can be confusing, especially since many people focus on the overall data, not the core, which excludes food and energy. “I think the general message is that inflation is still very, very high. The problem is that it’s moving into services, which is driven more by wage growth,” Dent said. “As for our inflation concerns, I don’t think the August CPI report will make us or the Fed feel much better.” Dent expects the Fed to be ready to raise rates another 75 basis points in September. One basis point is equal to 0.01 percentage point. “It looks like the August CPI will have more of an impact on the November FOMC meeting than on September,” Dent said. “He’s coming out during the blackout period. They’ve seen enough to tell them another 75 is probably warranted… Everything we see on wages, services inflation tells you that the inflation situation is still pretty dire… Looks like the bar for giving up a 75bp hike based on the August CPI is very high.We would have to see a decline in underlying inflation. Fed leaders were very hawkish last week.Fed Chairman Jerome Powell confirmed on Thursday that the Fed would keep rates high to fight inflation.Cleveland Fed Chair Loretta Mester said Wednesday that inflation remained very high and that the fed funds rate could go “somewhat above” 4% early next year.Fed officials will not speak during the week to come as they will be in a blackout period before their next th two-day meeting, which begins on September 20. just under 4% in the first quarter of next year. “Our expectation is by the end of the year we will be at 3.75% to 4%,” Dent said. He expects the Fed to reach a terminal rate of 4.125% by February. Interest rates and the US dollar rose but took a break over the weekend. This helped to reduce some of the pressure on equities. If Fed expectations rise on the CPI, pressure could return. Technically speaking, Oppenheimer technical analyst Ari Wald said rising Treasury yields pose a potentially big risk to stocks as the market weathers the typically difficult month of September through early October. The 10-year yield, which moves opposite to price, was close to 3.32% on Friday, below its June high of 3.49%. “Long-term bond yields remain our primary concern,” Wald said. “That was clearly a driver of the weakness in the first half, and we think rates are likely to top if the equity market bottoms out.” But the stock market also made positive progress last week. “We are of the opinion [that] the market is bottoming out. You want to be mindful of the seasons. It’s going to be a few weeks,” he said. September is the worst month for stock market performance, with the S&P 500 down 0.6% on average since World War II, according to the CFRA. A positive note last week: The S&P 500 moved back above its 50-day moving average. This level was at 4030 on Friday. The 50-day is simply the average of the last 50 closes, and a move above that is hold is seen as a positive sign Wald said the next challenge for the S&P 500 is to get back above its 200-day moving average, now at 4,275. the rise that was rejected in mid-August,” he said. he declares. Week Ahead Schedule Monday Earnings: Oracle, Rent the Runway Tuesday 6:00 a.m. NFIB Small Business Survey 8:30 a.m. CPI 2:00 p.m. Federal Budget Wednesday 8:30 a.m. PPI Thursday Earnings: Adobe 8:30 a.m. Initial Claims 8:30 a.m. Retail Sales 8 8:30 a.m. Import prices 8:30 a.m. Empire State manufacturing 8:30 a.m. Philadelphia Fed manufacturing 9:15 a.m. Industrial production 10 a.m. Business inventories Friday 8:30 a.m. Business leader survey 10:00 a.m. Consumer awareness 4:00 p.m. ICT data
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