business

What you need to know this week

Stocks closed lower last week after a sell-off in the technology sector, with the Nasdaq Composite (^IXIC) leading the losses and falling more than 1%.

Still, the equal-weighted S&P 500 posted a weekly gain for the seventh straight week as investors continue to look beyond the “Magnificent Seven” tech leaders to power the next leg of the market’s rally.

In the coming week, investors will face the last big test before the Federal Reserve’s March 20 meeting with the February Consumer Prince Index (CPI) report released Tuesday, which provides an updated look at inflation. Reports on retail sales and consumer confidence will appear on the economic calendar in the second half of the week.

A lighter earnings schedule is in order, with Dollar Tree (DLTR), Dollar General (DG), Dick’s Sporting Goods (DKS), Adobe (ADBE) and Ulta Beauty (ULTA) highlighting the list of quarterly reports.

Price control

Fed Chairman Jerome Powell has repeatedly said the central bank wants more “confidence” in the downward path of inflation. before lowering interest rates.

Tuesday’s CPI reading follows a better-than-expected January report that showed the decline in inflation could be “bumpy,” prompting investors to price in fewer interest rate cuts this year.

For February, Wall Street expects headline inflation to rise 3.1% year-over-year, unchanged from January’s headline figure, according to Bloomberg estimates. Prices are expected to rise 0.4% month-on-month, up from January’s 0.3% increase.

NEW YORK, NEW YORK - MARCH 05: People shop at a Target store in Manhattan on March 5, 2024 in New York City.  Making progress in boosting profits, shares of the Minneapolis-based retailer rose nearly 12% in afternoon trading despite a sales decline.  (Photo by Spencer Platt/Getty Images)

People shop at a Target store in Manhattan on March 5, 2024 in New York City. (Spencer Platt/Getty Images) (Spencer Platt via Getty Images)

On a ‘core’ basis, which excludes food and energy, prices are expected to have risen 3.7% year-on-year, a slowdown from January’s 3.9% increase. Monthly core price increases are expected to reach 0.3%, down from January’s 0.4% increase.

“January CPI data came out warmer than expected and renewed concerns about how quickly inflation could peak,” Wells Fargo’s team of economists led by Jay Bryson wrote in a research note on Friday.

“Despite the strong start to the year, we ultimately believe that the disinflation trend is continuing. We expect February data to show that while inflation remains frustratingly high, the underlying trend is not strengthening.”

Retail revival?

In January, retail sales recorded their steepest decline since March 2023.

But economists don’t expect this trend to continue in February.

Economists expect Thursday morning’s report to show that retail sales grew 0.8% month-on-month in February, a recovery from the 0.8% decline in the first month of the year.

Excluding cars and gasoline, economists expect sales to rise 0.2% month-on-month, compared with a 0.5% decline in January, Bloomberg data show.

“Retail sales will bounce back in February after weather-related weakness in January and a stronger tax refund season,” economists at Oxford Economics wrote in a note on Friday, “which would keep consumption growth on track for more than 2% annualized growth. gains in Q1, a strong pace.”

A shift in the market

The market action following Friday’s jobs report showed a clear shift in trading action.

After weeks of AI-powered stock market rally, Nvidia (NVDA) fell almost 5%. Other popular tech companies that got bids in the AI ​​euphoria also fell, including declines of about 4% at the likes of Arm Holdings (ARM) and Dell (DELL).

The move follows a divergence in the Magnificent Seven trade that emerged – in particular the underperformance of Apple and Tesla. This, strategists have argued, could continue to open the way for a broadening of the market rally.

This trend was evident all week, with the equal-weighted S&P 500 hitting its first record high in more than two years. Both that index and the small-cap Russell 2000 Index (^RUT) outperformed the broader market during Friday’s selloff.

“We think the Mag Seven is going to be the Lag Seven,” Piper Sandler chief market technician Craig Johnson told Yahoo Finance Live.

“Right now, we’re going to see a broadening of this market.”

Fewer companies talk about recession

Johnson’s call for a widening of the market rally was common across Wall Street from the start of 2024. The case for a recovery in other stocks is rooted in rising earnings estimates for stocks outside the tech leaders and the overall health of the U.S. economy.

That story remains largely intact. JPMorgan Chief U.S. Economist Michael Feroli noted after February’s jobs report that continued strength in the labor market lifted the company’s outlook for second-quarter gross domestic product (GDP) to 1.5% from 0.5% annualized pushed.

Strategists believe these higher economic forecasts will reflect on corporate profits beyond just technology stocks. And companies tell a similar story.

During earnings calls between December 15 and March 7, 47 S&P 500 companies mentioned the term “recession,” according to research from FactSet. It was the lowest number of companies mentioning the term in two years and was below the five- and 10-year average of mentions.

Weekly calendar

Monday

Economic data: New York Fed inflation expectations for one year, February (previously 3%)

Income: Asana (ASAN), Casey’s (CASY), Oracle (ORCL), Vail Resorts (MTN)

Tuesday

Economic data: NFIB Small Business Optimism, February (89.9 previously) Consumer Price Index, month-on-month, February (+0.4% expected, +0.3% previously); Core CPI, month-on-month, February (+0.3% expected, +0.4% prior); CPI, year-on-year, February (+3.1% expected, +3.1% prior); Core CPI, year-on-year, February (+3.7% expected, +3.9% prior); Real average hourly wage, year-on-year, February (+1.4% previously)

Income: Allbirds (BIRD), Clover (CLOV), Kohl’s (KSS), Manchester United (MANU), On Holdings (ONON)

Wednesday

Economic data: MBA mortgage applications, week ending March 8 (+9.7%)

Income: Dollar Tree (DLTR), Lennar (LEN), Vera Bradley (VRA), Williams-Sonoma (WSM)

Thursday

Economic data: First unemployment claims, week ending March 9 (previously 217,000); Retail sales, month-on-month, February (+0.8% expected, -0.8% prior); Retail sales excluding cars and gasoline, February (+0.2% expected, -0.5% earlier); Producer Price Index, month-on-month, February (+0.3% expected, +0.3% prior); PPI, year-on-year, February (+0.9% previously)

Income: Adobe (ORCL), Blink (BLNK), Build-A-Bear (BBW), Dollar General (DG), Dick’s Sporting Goods (DKS), Ulta Beauty (ULTA)

Friday

Economic data: Consumer confidence from University of Michigan, preliminary March (77.0 expected, 76.9 earlier); Import prices, month-on-month, February (+0.2% expected, +0.8% earlier); Export prices, month-on-month, February (+0.1% expected, +0.8 previously); Industrial production, month-on-month, February (+0.0% expected, -0.1% earlier)

Income: There is no significant revenue available for release.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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