US indexes look to next week’s data for next surge

Things have been a little more tepid for stocks over the past couple of days. But despite this, the S&P 500 is up just over 1% this week. However, this owes a lot to Monday’s rise. US futures could be trending lower today, but from a broader perspective, major indexes appear to be aligning for a retest of record highs next week:

Last month’s decline saw the S&P 500 close to a test of its 100-day moving average (red line) before buyers stepped in. It came as geopolitical tensions eased before a fresh surge last week after weaker U.S. data.

We’ve kind of bottomed out on the Fed’s outlook, as traders went from seven planned rate cuts at the start of the year to just one at the end of last month. Today we’re back to two rate cuts, which is helping stocks rebound modestly.

But the question now is: Is there more to this change in the Fed’s outlook? If so, it will be a boon for stocks.

Next week we will have US data on PPI, CPI and retail sales. These last two will be particularly worth watching.

If price pressures ease further as the U.S. economy begins to show signs of slowing, that will prompt traders to anticipate more potential rate cuts from the Fed.

Based on last week’s data, we may have started to see the first signs of a recovery in employment conditions. And Powell said a few slight increases in the unemployment rate could also start to turn heads at the Fed.

So if other data also supports this claim, stocks could be about to start running again as greed picks up.

Although I would have preferred last month’s correction to be deeper, that ultimately wasn’t the case. And so, if the fundamental argument comes back strong, it is difficult to object to it.

How do you think stocks will react to falling US data going forward? Or will the risks of stagflation and a weaker economy be a recipe for calming investors?