Investors set their sights on the upcoming inflation report as the bear market falters

The stock market may try to regain ground in the next few sessions, even with a new inflation report on the horizon by the end of the week.

Stocks have struggled to advance in the past week. With Friday’s heavy selling, the major indicators were on track to end the four-day period with losses. That was disappointing for investors looking for a follow-up from the rally in late May that featured the S&P 500. Gained about 6.5% in the week before Memorial Day.

Liz Ann Saunders, chief investment strategist at Charles Schwab, said the recent rally in the market was likely the setting for further selling.

“The kind of rally we saw last week and some of that implied looks a bit closer to bear market rallies,” she said. “I still think you are likely to get opposite trends in some of the more speculative areas of the market…but I strongly believe that low quality trading is in the rearview mirror. I think you would do well in this environment. You have to care about your value. They are not valuable indicators. Rather, it is concerned with evaluation.”

while the Standard & Poor’s 500 It briefly fell into a bear market on May 20, It did not close down 20% from its high. However, Sonders said it equates to a bear market, based on sharp declines in individual stocks.

Sonders isn’t yet seeing signs that would suggest stocks may rise, although she says there is room for more sharp rises.

“I think the sentiment environment is not bearish enough globally just yet,” she said. She said that feelings and behavioral actions must show extremes.

Peak inflation?

The economic calendar will be relatively light next week. The Consumer Price Index and Consumer Confidence – both released on Friday – are two of the most important reports.

May CPI is expected to be slightly cooler than April, and economists expect it to confirm that inflation has peaked. Art Hogan, chief market strategist at National Securities, said year-on-year headline inflation is expected at 8.2%, slightly lower. The pace is 8.3% in April.

“If the CPI comes in at or close to consensus, I think investors could feel better,” he said. Hogan said the market penetration upward movement in the last week of May helped sentiment, despite the decline in stocks last week. “Investors are in a more positive place and that could continue if the CPI is close to or better than the consensus,” he said.

Headline inflation, including food and energy, was at 8.5% in MarchHogan said the hope is that the CPI will fall from here to half that level by the end of the year.

Diane Sonk, chief economist at Grant Thornton, said the consumer price index will be affected by the rise in gasoline prices in May. She added that used car prices could also be a factor, and food prices continued to rise.

“Everyone is hoping for this peak of inflation, but it may be far more distant and less peak than people would like it to be,” Sonk said.

In the short term, Schwab’s Saunders said the market may be concerned about whether inflation has peaked.

“But it’s not just about whether we’re at the top,” she said. “It’s how fast we get off that peak and eventually to what level.” “Is the Fed doing the job of bringing inflation down to a 2% target? Or are they going to be comfortable at 3%… For me, where does the plane land? Is the runway higher than it was pre-pandemic?”

Profit Warnings

While there are few earnings reports next week, Hogan said companies could follow Microsoft’s lead and issue warnings. Microsoft lowered its revenue guidanceciting the unfavorable currency effect. sales force also Reducing revenue directing because of the currency.

“Investors are looking at that at least. It’s not a demand issue at least. They are focused on the dollar’s rise and what it can do to multinationals,” he said.

Campbell’s soup And the Brown Foremanmaker of Jack Daniel’s, announces quarterly results Wednesday. ring jewelry And the DocuSign After earnings Thursday.

Saunders said weak earnings and profit margin expectations could send the market down again.

“The valuation has been re-evaluated due to the weakness in the market, but we haven’t yet seen a weak outlook in earnings,” she said.

Saunders said market rallies need to show better breadth, which means the proportion of stocks rise together before they start to turn around.

Another sign to watch is the buy/sell ratio, which should be higher to reflect more pessimism. This ratio is used as a paradoxical indicator. It is a measure of the number of options to place an order. Put options are betting that stock prices are going down, and a large number will indicate very negative market sentiment.

Next week’s calendar

Monday

gains: jetlab, Coupa

Tuesday

gains: United Natural Foods, GM Smoker, chips barrel, ferent systemsCasey General Stores

8:30 am International Trade

3:00 PM Consumer Credit

Wednesday

gains: Campbell’s soup Brown ForemanAnd the Vera Bradley Primary outlet, five below

10:00 am wholesale trade

Thursday

gains: ring jewelry,New, Vail Resorts, Amphitheater Rentals, DocuSign, stitch repair

8:30 a.m. Initial jobless claims

Friday

8:30 AM CPI

10:00 am Consumer Review

2:00 p.m. Federal budget

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