US stock market rebound faces key inflation test as Wall Street Week Ahead. A rally that pushed U.S. stocks off the edge of a bear market faces a major test next week. It is when consumer price data is offered. Offers insight into how much more the Federal Reserve will have to do in its battle against the worst inflation in decades.
Despite a tough week, the S&P 500 is still up more than 5% from last month’s lows, which saw the benchmark index extend its slide to 20% from it’s all-time high. The index was recently down about 14% from its Jan. 3 record after losing 1% in the past week.
Further hikes could depend on policymakers making progress against rising prices. Signs that inflation remains strong may bolster the case for even more aggressive monetary tightening. which could scare a market already battered by concerns that a hardline Fed could deal a severe blow to U.S. growth.
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“This market is likely to remain within range until we get a significant downward movement in inflation,” said Mona Mahajan. Mona Mahajan is a senior investment strategist at Edward Jones. who currently favors large-cap stocks over small-cap stocks. he has given the ability of larger companies to absorb higher input costs and wages,” next week’s impression is going to be key.”
The Consumer Price Index (CPI)
The consumer price index (CPI) for the 12 months to April rose. It went down from 8.3% to 8.5% annual rate reported in the previous month, which was the biggest year-on-year gain in 40 years. Friday’s inflation report for May is one of the last key pieces of data ahead of the Fed’s June 14-15 meeting. Thus the central bank expected to raise rates by another 50 basis points.
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If inflation “continues to be an issue, the Fed may not have the option to move forward later this year,” said Paul Nolte. Paul Nolte is a portfolio manager at Kingsview Investment Management. He Further added, “The higher the interest rates, the more it will fight for the market.”
Nolte has lightened equity positions in the portfolios it manages. Nolte manages growth stocks, and has raised cash levels, pointing to factors such as still-high stock valuations.
Investors Weigh Data
The CPI report comes as investors assess. Assesses about how the 75 basis points of monetary tightening already delivered by the Fed this year are affecting growth. Employment data released Friday showed U.S. employers hired more workers than expected in May. Data also show maintaining a strong pace of wage increases. Also signs of strength that could keep the Fed on an aggressive path of tightening monetary policy.
Meanwhile, Top business leaders, JPMorgan Chase’s Jamie Dimon and Tesla’s Elon Musk, have weighed on hopes. Hopes that the central bank can cool inflation without hurting the economy. Musk said in an email to executives that he has a “super bad feeling” about the economy. He needs to cut about 10% of jobs at the electric carmaker, Reuters reported on Friday.
Investors’ view of inflation is central to how they value stocks, as higher prices have generally spurred the Fed to raise interest rates. Interest rates make bond yields higher in turn reducing the value of future corporate profits. Rising prices also increase costs for businesses and consumers.
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