How To Trade Fresh Inflation Data

During last week’s trading, we began to see a further broadening out of the current rally. While the recent market leaders, the mega-cap tech stocks, appear to be pausing to take a breath, leadership has shifted to other sectors like the Industrials & Financials. The most recent bullish move upward has been broad-based, evidenced by 10 of the 11 sectors being in the green this past week. This also can be illustrated by looking at the Equal Weight S&P 500 index which made a new all-time high to end the week. Additionally, the NYSE Advance-Decline index made multiple new highs coupled with 77.5% of S&P 500 stocks trading above their 200-Day moving average. These are all signs of broad participation in the current rally.

This week will bring a number of macroeconomic reports that investors are assured to be keenly watching. The first of these reports will be the new CPI & PPI inflation reports for the month of February which will be made available on Tuesday & Thursday respectively. In addition, the University of Michigan will report their latest consumer sentiment data on Friday. This week will also feature some notable earnings from a few significant tech companies including Oracle Corp. and a handful of smaller retailers including discount retailer Dollar General Corp.

CPI – On Tuesday, the BLS will deliver the new CPI (Consumer Price Index) data for the month of February. CPI is a gauge of price inflation at the consumer level. CPI measures the price inflation that consumers are faced with when purchasing goods or services.
- In the previous month’s report, YoY CPI came in hotter than expected, at 3.1% compared to an expectation of 2.9%. The February YoY number is expected to come in at 3.1%.

PPI – Following Tuesday’s CPI report, on Thursday, we will get the new PPI (Producer Price Index) data from the BLS. PPI is a gauge of wholesaler price inflation. This can be a good indicator of inflation to come as it is measuring the output cost at which producers have sold their goods.
- In the previous month’s report, YoY PPI came in at 0.9%, above the 0.6% expectation. February’s PPI number is forecasted to come in at 1.1%.

Consumer Sentiment (MCSI) – Every month the University of Michigan conducts a household survey, and its purpose is to measure the U.S. consumer’s current feelings about the economy and their personal finances. Given that consumer spending makes up about 70% of U.S. GDP, the consumer’s current sentiment is a crucially important tool in forecasting short-term economic trends as consumer sentiment heavily influences spending. This survey is compiled to form an index, the MCSI, which can quantify sentiment trends.
- In February’s report, MCSI saw a slight decrease of 2.7% to 76.9. Despite the slight drop, the MCSI index is still at a higher level than it has been for much of the past two years. This week’s report for March is expected to show a negligible drop of 0.4% to 76.6.

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Federal Reserve Watch

Last week featured a few speaking events for Fed members, highlighted byFed Chair Powell’s testimony in front of Congress. Powell’s testimony featured a few notable admissions from the Fed Chair. Powell explained that there will be significant reworking done to the ‘Basel III Endgame’ banking regulation proposal, which was a tailwind to the large-cap banks. Also, he emphasized that the FOMC intends to lower the Fed Funds rate at some point this year. However, it will likely be later in the year and the committee is in no rush to do so. This week will be relatively mild regarding any news from the Fed since the FOMC members just entered the quiet period leading up to the March 20^th meeting.

With recent Fed messaging coupled with continued strong economic data & positive inflation data, this has served as a catalyst to move Fed Funds Futures markets. The CME Group’s FedWatch Tool now projects a 97.0% probability that the Fed will maintain current policy rates at the meeting this month. This probability is slightly higher compared to the previous week.

Looking ahead to the next few FOMC meetings, Fed Funds Futures are now indicating that the first policy rate reduction will not come until the June meeting. The CME’s FedWatch tool projects a 71.5% probability that the FOMC will reduce rates at June’s meeting. Despite this being the current consensus opinion in the futures market, this probability is a touch lower than it was last week.

This Week’s Notable Earnings

Q4 earnings season has largely wrapped up now that 99% of S&P 500 companies have reported with roughly 73% of them posting upside earnings surprises. There are, however, a few significant companies remaining that have yet to post their Q4 results. This week we will hear from two of the remaining technology companies when Oracle Corp. & Adobe Systems, Inc. report. In addition to this, there is a group of well-known retailers in Dollar Tree, Inc., Dollar General Corp., Dick’s Sporting Goods Inc., & Ulta Beauty, Inc. that will all post their fourth quarter results this week.

This week, two major technology firms are expected to report their Q4 earnings. Despite both being heavily involved in the business of data, each company has lagged significantly in the recent AI-related bull run in the market. Strong quarterly results and positive guidance would be welcomed for both ORCL & ADBE. Oracle Corp. is set to report earnings on Monday after the close. On Thursday after the closing bell, Adobe Systems, Inc. will post their results.
- ORCL earnings are expected to come in at $1.38 EPS.
- ADBE earnings are expected to come in at $4.38 EPS.

Investors in the retail sector will be watching this week as a handful of smaller, yet important companies are due to report their latest earnings. Wednesday will bring the first of these reports as Dollar Tree, Inc. is set to report. Following this, on Thursday, Dollar General Corp. & Dick’s Sporting Goods Inc. will report their fourth quarter earnings. After the closing bell on Thursday, Ulta Beauty, Inc. will reveal their Q4 results.
- DKS earnings are expected to come in at $3.35 EPS.
- DG earnings are expected to come in at $1.75 EPS.
- DLTR earnings are expected to come in at $2.65 EPS.
- ULTA earnings are expected to come in at $7.52 EPS.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

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