Traders on the floor of the New York Stock Exchange.
Source: NYSE
After April’s disappointing jobs report, market focus will shift squarely to inflation in the week ahead.
The tug-of-war over tech stocks will also continue to be a dominant force in the stock market, after Friday’s bounce more than halved the week’s losses in the S&P technology sector.
The April employment report was extremely disappointing with just 266,000 jobs created, well below the 1 million expected. The Friday report cast doubt on the expectations of some investors that the Fed will move toward paring back its so-called quantitative easing bond purchases later this year.
The thinking is if the inflation data appears hot when the consumer price index is reported Wednesday, it could ignite the debate about whether the Fed will have to tighten policy sooner than it would like. For now, the market is viewing the April jobs data as a distorted one-off report.
“It’s all about the inflation numbers. It’s all about the transitory nature and to what extent we’ll see it,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group “It’s more relevant to the CPI month-over-month changes. If the month-over-month gains are starting to pick up steam, and we’re seeing 0.3% to 0.4%, that’s not transitory and that’s a problem for the Fed.”
Economists expect April CPI to rise 0.2% over March, after a gain of 0.6% the month earlier. But on a year-over-year basis, CPI is expected to look sizzling, jumping 3.6%, according to Dow Jones. That compares to 2.6% the month earlier. Excluding food and fuel, CPI is expected to rise by 0.3% on a month-over-month basis.
The central bank has maintained that the pop in inflation is expected to be transitory.
Multiple Fed speakers are on the calendar, including Vice Chairman Richard Clarida, who speaks a half-hour after the CPI print Wednesday. Other officials speaking include Federal Reserve Board Governor Lael Brainard, New York President John Williams and Dallas Fed President Rob Kaplan.
The producer price index is reported Thursday, and that should confirm a trend of higher prices that is showing up in corporate earnings releases. Another important data point, retail sales is released Friday.
Boockvar said the retail sales report is not as important since it has been artificially boosted by one-time stimulus checks.
“It’s like the steroid era of baseball,” he said. “Who knows how many home runs it would have hit without stimulus.”
Tech battleground
The S&P 500 and Dow finished the past week with gains. The S&P rose 1.2% to 4,232, and 2.7% to 34,777. But the technology-laden Nasdaq fell about 1.5% to 13,752, even with Friday’s 0.9% gain.
In the commodities market, fears of inflation continued to build.
Copper futures hit a record high, as did lumber futures, rising 13% in the past week. Corn futures rose 8.6% in the past week, finishing at the highest…
Read More: Inflation is the big challenge for markets and the Fed in the week ahead