Investors are turning their attention to inflation data in the week ahead, following this week’s hot jobs data, to further clarify the path of future monetary policy. Market participants are hoping next week’s release of the June consumer price index on Wednesday, as well as last month’s producer price index on Thursday, will show a downward trajectory in inflation after this week’s strong ADP data spurred investor fears of further rate hikes ahead. “CPI is a big number,” said James Ragan, director of wealth management research at D.A. Davidson. “You saw the market reaction, that big decline yesterday and then the market coming back a little bit today, just kind of indicates that there’s still a lot of discussion about what the interest rate path is going to be, and what the Fed might do. And so, I think the CPI kind of feeds into that.” Broadly speaking, investors are pricing in another quarter point rate hike at the July meeting. Traders are expecting a 92% chance that the Federal Reserve will raise rates by 25 basis points in July, according to the CME Group’s FedWatch Tool . However, “the real question mark” is what will happen at the September policy meeting. Currently, traders see a 72% likelihood the Fed will hold rates steady at the September meeting. “I think we’ll get more evidence that the Fed will find themselves being restrictive enough after the July meeting with inflation data that we get next week, and I think that’ll be a positive for markets,” said Art Hogan, chief market strategist at B. Riley Financial. Wall Street is wrapping up a shaky start to the second half of the year, though trading this week was curtailed because of the Fourth of July holiday. Markets were closed Tuesday, and cut short on Monday, for a total of 3.5 trading sessions. Regardless, all three major averages are headed for a losing week. Of note, stocks tumbled Thursday after hotter-than-expected ADP data suggested the Federal Reserve has further to go in its tightening campaign. That was the day the Dow Jones Industrial Average and the S & P 500 both notched their worst daily performance since May, while the 2-year Treasury yield surged to a 16-year high. A somewhat weaker-than-expected June jobs report released Friday did little to assuage those fears. Those moves come after a big run-up in stocks in the first half of 2023 that brightened Wall Street’s outlook for the third quarter and the second half of the year. Spouting Rock Asset Management chief strategist Rhys Williams said this week’s choppy moves were normal. “June was a very strong month in the markets,” Williams said. “So the fact that you’ve had a down week in equities, especially given how bonds acted, meaning bonds backed up, interest rates backed up, kind of not unusual, and we look at this as more of the pause that refreshes as long as inflation data keeps moving in the right direction.” Second-quarter earnings Second-quarter earnings are also starting up next week with big banks, such as JPMorgan and Citigroup and Wells Fargo, as well as a handful of other major companies. FactSet data shows analysts expect S & P 500 earnings fell 7% in the second quarter against the same quarter a year ago. It’s a forecast some market participants believe companies will improve upon. “First-quarter earnings did come in better than expected, so I think there’s maybe an expectation that earnings can exceed that down [7%] estimate,” D.A. Davidson’s Ragan said. “And then, if that happens, I think the likelihood of perhaps returning to earnings growth in the third quarter is possible.” Citigroup startegists said that would be a positive for markets, noting “Could a second straight quarter of rising earnings start to change that narrative and drive equity positioning even higher? As we have noted previously, such an increase is worth another 2-3% for the S & P 500.” Meanwhile, traders will be watching what major banks say about deposit flows and loan growth. Low expectations for the group could translate mean a positive surprise. JPMorgan Chase, Wells Fargo and Citigroup all report on Friday. BlackRock and UnitedHealth — the largest stock in the price-weighted Dow Jones Industrial Average — also release results the same day. Meanwhile, the latest quarterly profits from PepsiCo and Delta Air Lines are on Thursday. Week ahead calendar Monday 10 a.m.: Fed Vice Chair Michael Barr speaks 10 a.m.: Wholesale inventories (May) Tuesday 6 a.m.: NFIB Small Business Index (June) Wednesday 8:30 a.m.: Consumer price index (June) Thursday 8:30 a.m.: Initial jobless claims (week ended July 8) 8:30 a.m.: Producer price index (June) Earnings: PepsiCo, Conagra, Cintas, Delta Air Lines, Fastenal Friday 8:30 a.m.: Import/export prices (June) 10 a.m.: Consumer sentiment (July preliminary) Earnings: BlackRock, UnitedHealth, JPMorgan Chase, Wells Fargo, Citigroup, State Street
June inflation data will be closely watched by traders in coming week
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