The stock market may hit new highs in the coming week, although new data facing investors may show that consumer inflation has increased at its highest level in more than 30 years.
After a landmark week, the stock market hit record levels on Friday, including the Federal Reserve’s announcement that it will reduce bond purchases, which is the first step away from the easing measures it has taken to fight the pandemic.
Leo Grohowski, Chief Investment Officer of BNY Mellon Wealth Management, said: “I think the important drivers of the market remain the same-earnings and interest rates.” “I think the Fed has given the stock market what it wants… This is an understanding of inflation. , But did not overreact to inflation. At the same time, we are still digesting a very strong earnings season.”
The Fed expects to completely reduce its monthly bond purchases by US$120 billion by the middle of next year. At that time, some economists expect the central bank to start raising interest rates. Fed Chairman Jerome Powell assured the market that the central bank still believes that inflation is temporary, but if it turns out that inflation is heating up, the Fed will take action.
“I think, at least in the short term, investors are very clear about the stock market here, and it is difficult to argue with it. When you take a six-month view, we will have more concerns,” CEO Dai Said David Donabedian. Investment officer of CIBC Private Wealth Management.
“The biggest concern is inflation, and we don’t think this is temporary,” he added. “After the reduction process in mid-2022 is completed, I will seek to raise interest rates almost immediately.”
Dona Bedian said that the worry is that sticky inflation may force the Fed to raise interest rates faster to counter rising prices.
The producer price index and consumer price index were announced on Tuesday and Wednesday. Economists expect these two reports to remain high in October. According to Dow Jones data, the overall PPI is expected to rise by 0.6%.
CPI is expected to become the most popular data after the pandemic. Overall CPI inflation is expected to increase by 0.6% or 5.9% year-on-year, the fastest growth rate since December 1990. Core inflation excluding energy and food is expected to rise 4.3% year-on-year.
“The increase in housing costs is shocking, so if you understand this, coupled with rising energy prices, we might see 5.7% [headline gain],” said Diane Swank, Chief Economist of Grant Thornton.
Steve Sosnick, chief strategist at Interactive Brokers, said the market is already expecting inflation data to rise.
“The market now has a certain degree of tunnel vision. The loose currency will last for a while, even if the Fed tells us they will not refill punches, but the party will last for a long time,” he said. “Now the least resistance The path is higher.”
Fed officials are not on the same page
The central bank spokesperson will also be a bright spot in the coming week. Federal Reserve Chairman Jerome Powell will attend two events. On Monday, he will attend the Federal Reserve meeting on gender and the economy. He delivered a speech on Tuesday at a virtual conference on diversification and inclusion in the economy, finance, and central banking, co-sponsored by the Federal Reserve, the Bank of Canada, the Bank of England, and the European Central Bank.
Many other Fed officials are also speaking, including Fed Vice Chairman Richard Clarida, New York Fed Chairman John Williams and San Francisco Fed Chairman Mary Daley.
CIBC’s Donabedian said that this group of speakers may be important, and listening to the nuances of their views on price increases will be the key. “You do get some different twists and turns on inflation. Although this doesn’t seem like a feud at all, it looks like members have different views on inflation,” he said.
Investors will also pay attention to any progress Congress makes on Biden’s spending plan, which was opposed in the Senate.
“It looks like we will get some sort of vote on two large fiscal plans in the House of Representatives,” Dona Bedian said. He said he hopes that the House of Representatives will pass these two bills, and the infrastructure bill should be signed into law.
He said: “Whether the Senate will make major changes to the social spending bill is indeed an open question, and it may fail,” and pointed out that the probability of it failing is less than 50%.
The earnings season is coming to an end, but there are still many reports next week, including the Walt Disney Company on Wednesday.
One week in advance calendar
9:00 AM Richard H. Clarida, Vice Chairman of the Federal Reserve
10:00 AM Boston Fed President Kenneth Montgomery
10:30 AM Federal Reserve Chairman Jerome Powell attends the Gender and Economic Conference hosted by the Federal Reserve
10:55 am New York Fed President John Williams
12:00 noon Fed Governor Michel Bowman
12:00 pm Patrick Huck, Chairman of the Philadelphia Federal Reserve Bank
1:50 PM Charles Evans, Chairman of the Chicago Federal Reserve Bank
2:00 pm Senior loan officer survey
6:00 AM NFIB survey
7:50 am St. Louis Fed President James Brad
9:00 a.m. Fed Chairman Powell attends the Economic, Financial and Central Banking Diversity and Inclusion Conference co-sponsored by the Federal Reserve, the Bank of Canada, the Bank of England and the European Central Bank
11:35 am Mary Daly, Chairman of the San Francisco Federal Reserve Bank
1:30pm Minneapolis Federal Reserve Chairman Neel Kashkari
8:30 in the morning, the number of people applying for unemployment benefits for the first time
8:30 am Consumer Price Index
10:00 AM Wholesale trade
2:00 p.m. Federal Budget
Bond market closed
10:00 AM Consumer sentiment
10:00 am bumpy
12:10 p.m. John Williams of the New York Fed