Wall Street will navigate a series of consumer-focused data releases this week, alongside geopolitical risks linked to a summit between President Joe Biden and President Xi Jinping, as investors look to extend the November rally into year's end.
With stocks booking back-to-back weekly gains following Friday's solid close, and the S&P 500 up 5.28% so far this month, investors are now looking ahead to Tuesday's key inflation release from the Commerce Department.
That'll help determine whether price pressures are easing at a pace that would allow the Federal Reserve to avoid another rate hike over the coming months.
Economists estimate headline inflation slowed to 3.3% last month, down from the 3.7% pace recorded in September and well south of the 9.1% peak inflation print from June of last year.
Core consumer prices, the Fed's key focus, are likely to remain sticky, holding at 4.1% and 0.3% on a yearly and monthly basis respectively, thanks in part to an outperforming economy and a resilient labor market.
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The split readings, then, may not be compelling enough for the Fed to signal a softening of its hawkish rate stance, which Chairman Jerome Powell reiterated last week, and could nudge Treasury bond yields higher as a result.
CME Group's FedWatch tool suggests no better than a 26% chance of a Fed rate hike between now and June, when investors currently expect the first Fed rate cut.
"We are sticking to our view that the Fed is done, but we have always maintained that a final hike can’t yet be ruled out," said Ian Shepherdson of Pantheon Macroeconomics. "Chair Powell was keen to make the latter point too last Thursday."
"The path to 2% inflation will not be smooth and some setbacks are inevitable," he added.
October retail sales report in focus
The impact of elevated inflation, particularly at the core level, will also be in focus Wednesday as the Commerce Department follows-up with October retail sales figures.
The headline figure, which isn't adjusted for inflation, likely fell 0.1% from September thanks to a pullback in gas prices, which the Energy Department said were down 5.5% to $3.742 per gallon.
The traditionally soft October spending tally, which may also have been affected by the resumption of student loan payments, will be colored by holiday season outlooks from retail giants Home Deport HD, Target TGT and Walmart WMT, all of which report October-quarter earnings this week.
Walmart, which reports before the close on Thursday, is estimated to post overall earnings 1.3% higher than a year earlier to $1.52 a share, with revenue up 4.4% to $159.5 billion.
The retail sector updates are the highlight of an otherwise quiet stretch of reporting as the third-quarter earnings season draws to a close, albeit with a firmer-than-expected overall tenor.
S&P profits are forecast higher
With around 455 of the S&P 500 reporting so far, collective profits are forecast to rise 6.3% from last year to a share-weighted $487.1 billion. That compares to the initial third-quarter estimate of around $466.8 billion.
Around 81.3% of reporting companies have topped Wall Street forecasts, according to LSEG data, well ahead of the recent four-quarter average of 73.6% and the long-term pace of around 66.5%.
Earnings growth is likely to slow into the final months of the year, however, with LSEG data indicating collective profits will grow just 5.8% to around $460.7 billion.
Markets are also likely to focus on headlines from the first face-to-face meeting in more than a year between President Biden and President Xi on the sidelines of the Asia-Pacific Economic Cooperation summit in San Francisco Wednesday.
The meeting, which is expected to include trade and diplomatic teams from both sides, will focus on regional security issues, broader economic relations, artificial intelligence risks and China's role in quelling conflicts in Europe and the middle east.
“Building on their last meeting in November 2022 in Bali, Indonesia, the leaders will also discuss how the United States and the PRC can continue to responsibly manage competition and work together where our interests align, particularly on transnational challenges that affect the international community,” White House Press Secretary Karine Jean-Pierre said Friday.
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