A stunning earnings report from AI darling Nvidia (NVDA) sent shares hitting record highs last week. New inflation data will put this rally to the test in the coming days.
The S&P 500 (^GSPC) and Dow Jones (^DJI) ended the week up about 1%, while the Nasdaq Composite (^IXIC) gained about 0.6%. Both the S&P and Dow closed at record highs on Friday.
The biggest challenge for markets next week will likely be Thursday's latest reading of the Personal Consumption Expenditure (PCE) index, the Federal Reserve's preferred measure of inflation. A look at consumer confidence and manufacturing updates will also be in focus later in the week.
Quarterly reports from Salesforce (CRM), Lowe's (LOW), Macy's (M), Okta (OKTA) and Best Buy (BBY) are also included.
Price check
The last time an inflation report came out before the opening bell, a hotter-than-expected consumer price index (CPI) rocked markets and sparked a sell-off in stocks.
That could happen again. The latest inflation figures are due to be published on Thursday. Economists expect an annual “core” PCE – which excludes the volatile food and energy categories was 2.4% in January. For the previous month, economists forecast a “core” PCE of 0.4%.
A monthly price rise of 0.4% would be a notable increase from last month's 0.2% and reflects growing fears that inflation could prove more stubborn than initially hoped. Specifically, this would result in six- and three-month annualized inflation numbers, which were below the Fed's 2 percent target, back above 2 percent, according to Bank of America's economics team.
Ellen Zentner, chief U.S. economist at Morgan Stanley, noted that a surge in monthly price hikes would set the stage for a “bumpy” inflation picture in the next few months. Markets are currently pricing in three rate cuts for 2024, in line with the Fed's latest forecast and compared with a previous consensus of six rate cuts in December, according to Bloomberg data.
The story goes on
The consumer comes into focus
The fourth-quarter earnings season is slowing, but a slew of companies, including many in the retail sector, will continue to file reports. The coming week will bring a closer look at the consumer with results from Macy's, Best Buy and TJX (TJX), among others.
For Simeon Siegel, senior retail analyst at BMO Capital Markets, the key question remains whether consumer spending is losing momentum. At this point, he told Yahoo Finance Live, quarterly results showed Americans were still spending on consumer goods.
“There is a perception that it continues because of inflation [consumer] “Staple items that people don’t buy at their own discretion,” Siegel said. “But I don’t see that in the results.”
Federal Reserve Board Chairman Jerome Powell speaks during a press conference at Fed Headquarters on January 31, 2024 in Washington, DC (Anna Moneymaker/Getty Images) (Anna Moneymaker via Getty Images)
Have we reached market euphoria?
With With all three major averages trading near record highs and AI star Nvidia's earnings sending an entire sector into rally mode, perhaps the biggest question for investors is whether the market has peaked.
Citi's US equity strategy team says no.
“Now is not the time to panic as sentiment has not yet reached euphoria,” Citi Chief Executive Scott Chronert wrote in a weekly note to clients.
Chronert's team uses an indicator called the Levkovich Index, which takes into account investors' short positions and leverage, among other things, to determine market sentiment. The current reading is 0.33, below the 0.38 reading that signals markets have entered euphoria or an excessive peak. As can be seen in the chart below, previous periods where the market moved into euphoric territory were often followed by declines in the market.
Chronert acknowledges that strong market momentum could push the S&P 500 above the company's year-end target of 5,100 points in the short term, but in the long term more tailwinds will be needed to continue pushing the market higher.
“Sustainable development may require more earnings growth and macroeconomic tailwinds such as lower interest rates in the longer term.” [S&P 500] Index up,” Chronert wrote.
Weekly calendar
Monday
Economic data: Dallas Fed manufacturing activity, February (-27.4 previous); New Home Sales, January (annualized rate of 684,000 expected, previously 664,000); New Home Sales MoM, January (+3% expected, +8% so far)
Merits: Domino's Pizza (DPZ), Freshpet (FRPT), Hims & Hers (HIMS), iRobot (IRBT), Workday (WDAY), Zoom (ZM)
Tuesday
Economic data: Conference Board Consumer Confidence, February (114.8 expected, 114.8 forecast); S&P CoreLogic Case-Shiller, 20-City Composite Home Price Index, Monthly Comparison, December (+0.15% previous); S&P CoreLogic Case-Shiller 20-City Composite Real Estate Price Index, Year-on-Year, December (+5.4% previous)
Merits: AutoZone (AZO), Beyond Meat (BYND), Cava (CAVA), Cracker Barrel (CBRL), Devon Energy (DVN), First Solar (FSLR), Lowe's (LOW), Macy's (M), Norwegian Cruise Line (NCLH )
Wednesday
Economic data: MBA mortgage applications, week ending February 23 (-10.6% prior); Month-on-month wholesale inventory levels, January (+0.4% previous); Fourth quarter GDP second estimate (+3.3% annualized expected, +3.3% previous); Personal consumption in the fourth quarter, second estimate (+2.7% expected on an annual basis; +2.8% so far)
Merits: Advance Auto Parts (AAP), AMC (AMC), Baidu (BIDU), C3.ai (AI), Icahn Enterprises (IEP), TJX Companies (TJX), Marathon Digital Holdings (MARA), Novavax (NVAX), Okta (OKTA), Paramount Global (PARA), Salesforce (CRM), Snowflake (SNOW), Weight Watchers (WW)
Thursday
Economic data: Initial jobless claims, week ending February 24 (previously 201,000); Personal income month-on-month, January (+0.5% expected, +0.3% previous); Personal spending month-on-month, January (+0.2% expected, +0.7% previous); PCE inflation month-on-month, January (+0.3% expected, +0.2% previous); PCE Inflation, YoY, January (+2.4% expected, +2.6% prior); “Core” PCE, month-on-month, January (+0.4% expected, +0.2% prior); Core PCE, YoY, January (+2.8% expected; +2.9% prior)
Merits: Anheuser Busch (BUD), Bath & Body Works (BBWI), Best Buy (BBY), Birkenstock (BIRK), Celsius (CELH), Dell (DELL), Fisker (FSR), Hewlett Packard Enterprises (HPE), Six Flags (SIX), SoundHound (SOUN), Zscaler (ZS)
Friday
Business News: S&P Global US Manufacturing PMI, February final (previously 51.5); ISM Manufacturing, February (49.2 expected, previously 49.1); ISM Prices Paid, February (previously 52.9); Consumer sentiment at the University of Michigan, final in February (79.6 expected, 79.6 previous)
Merits: FuboTV (FUBO), Plug Power (PLUG)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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