April 14, 2024

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What do you know this week?

What do you know this week?

Stocks ended last week lower after a sell-off in the technology sector that saw the Nasdaq Composite (^IXIC) lead the losses, falling more than 1%.

However, the equal-weighted S&P 500 posted weekly gains for the seventh straight week as investors continue to look beyond the “Greater Seven” technology leaders to support the next phase of the market's rally.

Next week, investors will face the final major test before the Federal Reserve's March 20 meeting with the February Consumer Index (CPI) report due on Tuesday, which provides an updated look at inflation. Retail sales and consumer confidence reports will appear on the economic calendar in the back half of the week.

There's a lighter earnings schedule with Dollar Tree (DLTR), Dollar General (DG), Dick's Sporting Goods (DKS), Adobe (ADBE), and Ulta Beauty (ULTA) highlighting the quarterly reporting list.

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Federal Reserve Chairman Jerome Powell has repeatedly said the central bank wants more “confidence” in inflation's downward path Before lowering interest rates.

Tuesday's CPI reading comes on the heels of a hotter-than-expected January report that showed lower inflation could be “bumpy,” prompting investors to price in smaller interest rate cuts this year.

For February, Wall Street expects headline inflation to post a 3.1% annual increase, unchanged from January's headline figure, according to Bloomberg estimates. Prices are expected to rise by 0.4% on a monthly basis, which is an increase from the 0.3% rise recorded in January.

NEW YORK, NEW YORK - MARCH 05: People shop at a Target store in Manhattan on March 5, 2024 in New York City.  Showing progress on the earnings increase, shares of the Minneapolis-based retailer jumped nearly 12% in afternoon trading despite falling sales.  (Photo by Spencer Platt/Getty Images)

People shop at a Target store in Manhattan on March 5, 2024 in New York City. (Spencer Platt/Getty Images) (Spencer Platt via Getty Images)

On a “core” basis, which excludes food and energy, prices are expected to rise 3.7% year-on-year, a slowdown from the 3.9% increase seen in January. Monthly increases in core prices are expected to be 0.3%, lower than the 0.4% increase seen in January.

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“January CPI data came in hotter than expected and renewed concerns about how quickly inflation can be reached,” Wells Fargo's team of economists led by Jay Bryson wrote in a research note on Friday.

“Despite the strong start to the year, we ultimately believe the trend of lower inflation remains. We expect February data to show that although inflation remains frustratingly high, the underlying trend is not strengthening.”

Retail recovery?

In January, retail sales recorded their largest decline since March 2023.

But economists do not expect this trend to continue in February.

Economists expect a report Thursday morning to show that retail sales grew 0.8% month over month in February, a rebound from the 0.8% decline seen in the first month of the year.

Excluding autos and gas, economists' project sales rose 0.2% month over month compared with a 0.5% decline in January, according to data from Bloomberg.

“Retail sales will rebound again in February after weather-related weakness in January and a stronger tax refund season, which would leave consumption growth on track at an annualized rate of more than 2%,” economists at Oxford Economics wrote in a note on Friday. Gains in the first quarter, at a solid pace.”

A shift in the market

Market action after Friday's jobs report showed a clear shift in trading activity.

After weeks of an AI-fueled stock market rally, Nvidia (NVDA) stock is down nearly 5%. Other popular technology trades that gained exposure amid the AI ​​euphoria also fell, including nearly 4% declines from Arm Holdings (ARM) and Dell (DELL), among others.

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The move comes in the wake of the divergence that emerged in the Magnificent Seven trade – Especially the lagging performance from Apple and Tesla. Strategists say this could continue to open the way for a broader market rally.

This trend has been seen throughout the week, with the equal-weighted S&P 500 hitting its first high A record for more than two years. Both this index and the Russell 2000 small-cap index (^RUT) outperformed the broader market during Friday's sell-off.

“We think Mag Seven will become Lag Seven,” Craig Johnson, chief market technician at Piper Sandler, told Yahoo Finance Live.

“At this point, we will start to see expansion in this market.”

Fewer companies mention the recession

Johnson's call for an extended market rally was popular across Wall Street to start 2024. The reason other stocks are rising is rooted in rising earnings estimates for stocks outside of technology leaders and the overall health of the US economy.

This story is still largely intact. Michael Feroli, chief U.S. economist at JPMorgan, noted after the February jobs report that continued strength in the labor market pushed the company's second-quarter GDP forecast to 1.5% year over year from 0.5%.

Strategists believe this rising economic outlook will be reflected in company earnings beyond just technology stocks. Companies tell a similar story.

During earnings calls that ran from Dec. 15 to March 7, 47 S&P 500 companies mentioned the term “recession,” according to research by FactSet. This was the lowest number of companies mentioning this phrase in two years, and was below the five- and 10-year averages.

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Weekly calendar

Monday

Economic data: New York Fed one-year inflation forecast, February (previously 3%)

Profits: Asana (ASAN), Casey (CASY), Oracle (ORCL), Vail Resorts (MTN)

Tuesday

Economic data: NFIB Small Business Optimism, February (89.9 previously) CPI, Monthly, February (+0.4% expected, +0.3% previously); Core CPI, MoM, February (+0.3% expected, +0.4% previously); CPI, YoY, February (+3.1% expected, +3.1% previously); Core CPI, YoY, February (+3.7% expected, +3.9% previously); Real average hourly earnings, year-on-year, February (+1.4% previously)

Profits: Allbirds (BIRD), Clover (CLOV), Kohl's (KSS), Manchester United (MANU), On Holdings (ONON)

Wednesday

Economic data: MBA Mortgage Applications, week ending March 8 (+9.7%)

Profits: Dollar Tree (DLTR), Lennar (LEN), Vera Bradley (VRA), Williams Sonoma (WSM)

Thursday

Economic data: Initial jobless claims, week ending March 9 (previously 217,000); Retail Sales, MoM, February (+0.8% expected, -0.8% previously); Retail sales excluding automobiles and gas, February (+0.2% expected, -0.5% previously); Producer Price Index, Monthly, February (+0.3% expected, +0.3% previously); Producer Price Index, y/y, February (+0.9% previously)

Profits: Adobe (ORCL), Blink (BLNK), Build-A-Bear (BBW), Dollar General (DG), Dick's Sporting Goods (DKS), Ulta Beauty (ULTA)

Friday

Economic data: University of Michigan Consumer Confidence, March preliminary reading (77.0 expected, previous 76.9); Import Prices, Monthly, February (+0.2% expected, +0.8% previously); Export Prices, Monthly, February (+0.1% expected, +0.8 previously); Industrial Production, Monthly, February (+0.0% expected, -0.1% previously)

Profits: No notable profits have been identified for the issue.

Josh Schaeffer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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