New York
U.S. stock investors are closely watching next week’s inflation data, which could impact the ongoing equity rally. The performance of the S&P 500, which has gained 16% year-to-date, hinges on signs that the U.S. economy is heading for a soft landing, where the Federal Reserve can lower inflation without damaging economic growth.
Last week’s employment data contributed to this narrative by indicating a robust job market that doesn’t require the Fed to aggressively raise interest rates. However, if next week’s consumer price data shows inflation running too high, it could reignite concerns about the Fed’s rate-hike strategy. This could lead to a decrease in investor confidence and a potential sell-off, particularly in tech stocks, which have been driving the rally.
Investors will closely scrutinize the inflation data for signs of a structural shift in the economy, including higher nominal GDP growth, which could lead to increased volatility and unintended consequences in the market.
In addition to the inflation data, investors will also monitor other economic indicators, such as the producer price index and retail sales, to gauge the Fed’s future policy actions. While the central bank is expected to keep benchmark rates steady at its September meeting, market expectations for a rate hike at the November meeting have increased from 28% to nearly 44% over the past month, reflecting sensitivity to inflation data.
