How the Federal Reserve proceeds with interest rate policy will be investors’ main concern next week when the latest inflation data is released. This pricing data comes at a difficult time as markets attempt to maneuver around rising Treasury yields. Stocks rallied Friday after parts of the March jobs report assured investors that the central bank remains on track to cut rates this year. The number of jobs added to the U.S. economy in March exceeded expectations, underscoring the strength of the labor market. But average hourly earnings match forecasts, suggesting that the job market and the broader economy aren’t actually overheating. Currently, the CME’s FedWatch tool shows that markets are pricing in three rate cuts this year, starting in June. But Wall Street will have a deeper look next week at what Fed governors are watching when the March consumer and producer price indexes are released. Investors have mostly ignored recent reports suggesting inflation is stickier than expected, saying much of January’s rally, for example, was attributable to seasonal factors. The March data could confirm to investors whether inflation is indeed heading towards the Fed’s 2% target, or whether underlying assumptions for interest rates need to be revised. A strong inflation reading next week could put the brakes on this year’s extraordinary stock rally, especially as concern grows that the market is overbought. Mountainous IEF YTD price of the iShares 7-10 Year Treasury Bond ETF this year. “A lot of the momentum and breadth in the fourth and first quarters are pretty bullish signs, but we’re also pretty tight in the near term,” said Ross Mayfield, investment strategy analyst at Baird. “Sentiment is bullish, positioning is quite hawkish. The market continues to rule out rate cuts. And so, I think in the absence of an upside catalyst, an upward push in yields could be a problem for the stock market in the close to expiration.” “I would expect a little more volatility, certainly than we saw in the first quarter, and potentially a little bit of a correction here,” Mayfield added. Stock benchmarks had a losing week on Friday amid surging oil prices and rising Treasury yields. The Dow Jones Industrial Average ended the week down 2.3%, while the S&P 500 and Nasdaq Composite fell about 1% and 0.8%, respectively. West Texas Intermediate crude oil futures topped $87 a barrel this week, hitting a five-month high. The yield on the 10-year Treasury note hit 4.4% on Friday, up from 4.2% last week. Meanwhile, investor sentiment surveys appeared tense. .SPX mountain 10-31-2023 The S&P 500 index since the end of October. Short-Term Pressure Forecasts for next week’s data indicate that Wall Street expects continued progress in the fight against inflation. Economists polled by FactSet expect the March consumer price index to show a 0.3% month-over-month increase in prices, lower than February’s 0.4% increase. Likewise, the March producer price index is expected to show an increase of 0.5%, according to FactSet consensus estimates. This is a lower increase than the previous month’s 0.6%. But some investors remain concerned that inflation could rise in the months leading up to the Fed’s June meeting, which could alter market expectations about interest rates. Hedge fund manager David Einhorn told CNBC’s Scott Wapner this week that he expects inflation to reaccelerate, noting that he has made safe-haven gold an important position in his portfolio. On Friday, Fed Governor Michelle Bowman said another rate hike, not a cut, may be necessary if inflation remains sticky. Others worry that recent signs point to a stock market ripe for a near-term correction. Bespoke Investment Group found that sentiment is at historically high levels, with the bullish spread as measured by Investors Intelligence and the American Association of Individual Investors at the 96th percentile, as measured by data going back to 1997. Historically, high values mean little future returns brilliant, found tailor-made. On average, stocks typically fall slightly after the bullish reading, he said. Over the next three months, their average gain is 1 percentage point. Over the following year they recorded an average progress of almost three percentage points. Constructive upside Regardless, many investors remain optimistic that stocks can continue to rise, citing the recent broadening of the rally and a resilient economy as constructive signs for markets. US Bank’s Tom Hainlin has a year-end target of 5,520 on the S&P 500, favoring U.S. stocks over non-U.S. stocks and large-cap companies over small-cap ones. He predicts that more stocks participating in the rally will benefit sectors such as materials and energy. “We would say we are still optimistic about further thawing in stock prices,” Hainlin said. “And that’s based on the durability of earnings estimates for the year.” Jamie Myers, financial analyst at Laffer Tengler, is also bullish on the stock. He spies opportunities in dividend growth stocks, saying investors should choose companies that have recently increased dividends, such as Walmart. The move signals management’s confidence in future earnings. Next week will also mark the start of first-quarter earnings season. Next Friday the results of the country’s largest banks will be presented, from Citigroup to JPMorgan Chase to Wells Fargo. The minutes of the latest meeting of the Federal Open Market Committee will also be published next Wednesday. Next week’s calendar All times ET. Monday, April 8 Tuesday, April 9 6:00 am NFIB Small Business Index (March) Wednesday, April 10 8:30 am Consumer Price Index (CPI) (March) 8:30 am Final hourly wages (March) 8:30 am Final working week average (March) 10:00am Final Wholesale Inventories (February) 2:00pm Treasury NSA Balance Sheet (March) 2:00pm FOMC Minutes Earnings: Delta Air Lines Thursday, April 11 8:30am Continuing Jobless Claims (3 /30) 8.30am Initial Claims (04/06) 8.30am Producer Price Index PPI Earnings: CarMax Friday 12 April 8.30am Export Price Index (March) 8.30am Import Price Index ( March) 10 am Michigan Preliminary Sentiment Earnings (April): State Street, Wells Fargo, JPMorgan Chase, Progressive, Citigroup