Next week’s inflation reports are pivotal for keeping the optimistic economic forecast that has been boosting stocks. The stock market is jittery, swinging with each new earnings report and tariff update, and relies on steady inflation numbers to settle down. Despite a lighter economic agenda on Wall Street in the coming days, investors are eagerly awaiting the January consumer and producer price indexes. Recent economic data has rekindled inflation worries; Friday’s report showed wages rising at a brisk pace—hinting at inflation—while consumer confidence dipped due to fears about increased prices from tariffs. These concerns have sent Treasury yields soaring.
However, market watchers believe these figures won’t significantly influence the Federal Reserve’s interest rate plans. Presently, the CME FedWatch Tool indicates that just a single quarter-point rate cut is anticipated for the year, likely arriving midyear. Yet, there’s still apprehension among investors that an unexpected inflation report could disrupt current interest rate predictions. "We’d need inflation numbers significantly above expectations to truly unsettle the markets," mentions Art Hogan, chief market strategist at B. Riley Financial. "Even if the numbers turn out lower than expected, it’s unlikely to prompt any immediate changes in monetary policy."
When it comes to consumer pricing, there’s an expectation of easing, with the CPI likely reducing to an annual rate of 2.8% for January, down a notch from 2.9%. Similarly, core inflation, excluding the volatile food and energy sectors, is projected to slip from 3.2% to 3.1% over the past year. Producer price indices are also anticipated to follow suit, tapering to 3.1% from 3.3%. If food and energy are excluded, the drop is expected to be to 3.2% from 3.5%.
Despite the underlying strength of the economy keeping stock market outlooks positive, there’s still caution amid policy announcements from Washington that could stir volatility in equities, similar to this week’s events. The Dow Jones Industrial Average experienced a bit of a rollercoaster, briefly stumbling over tariff news early in the week, recuperating losses, only to fall again by Friday. "We’re always braced for surprise announcements on tariffs," notes Hogan of B. Riley Financial. However, next week could bring some positives with the potential confirmation of key Cabinet positions, which might alleviate market hesitancies. "Approvals might lead to a less aggressive regulatory approach as we get new department heads, which could counterbalance tariff concerns," he adds.
Tariffs are also clouding company forecasts, with several firms citing a stronger dollar leading to dimmer financial predictions. In fact, mentions of the term "tariffs" have surged in S&P 500 companies’ earnings calls, reaching heights not seen since 2019, based on FactSet’s data. If this trend persists, we might witness a record number of tariff mentions this season, suggests John Butters, senior earnings analyst at FactSet.
Wrapping up the week, the stock market closed on a down note. The Dow Jones Industrial Average dropped 0.5%, the S&P 500 fell 0.2%, and the Nasdaq Composite decreased by 0.5%.
Upcoming Week’s Schedule (All times in ET):
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Monday, Feb. 10: Earnings reports are expected from ON Semiconductor, Rockwell Automation, and McDonald’s.
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Tuesday, Feb. 11: The NFIB Small Business Index for January will be released at 6 a.m., followed by remarks from John Williams, New York Fed President, at 3:30 p.m. Major earnings releases include Gilead Sciences, Coca-Cola, and Marriott International.
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Wednesday, Feb. 12: Key reports include the Consumer Price Index and Hourly Earnings for January, both at 8:30 a.m. The Treasury Budget for January will be announced at 2 p.m. Companies like Paramount Global and Cisco Systems will report earnings.
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Thursday, Feb. 13: Continuing and Initial Jobless Claims and the Producer Price Index for January will be published at 8:30 a.m. The day includes key speeches by New York Federal Reserve officials and earnings from companies like Airbnb, Wynn Resorts, and Duke Energy.
- Friday, Feb. 14: Significant reports include the Export Price Index, Import Price Index, and Retail Sales for January at 8:30 a.m. Additionally, Moderna is among those announcing earnings.
