Wall St Week Ahead: Inflation report, bond yields in focus as US stocks rally pauses
bond yields offer the latest test to a U.S. stock rally that has delivered hefty gains this year. The benchmark S&P 500 index is up 16.6% year to date, fueled by an improving economic outlook, excitement over developments in artificial intelligence and signs that the Federal Reserve is close to ending its market-bruising U.S.
interest rate hikes. Stocks' near-term trajectory, however, may depend on whether next week's inflation report shows consumer prices remaining subdued. Investors are also closely watching the path of Treasury yields, which rattled equity markets in recent days by rising to fresh year highs.
The S&P 500 fell 2.27% this week, its biggest weekly decline since March 10. «After a massive run-up in equities… any sort of blip in terms of any of the macro data (is) probably going to be a reason for people to take profits,» said Jack Janasiewicz, lead portfolio strategist and portfolio manager at Natixis Investment Managers. While consumer prices have not been rising as fast lately, some investors worry stubborn inflation may force the Fed to leave rates at current levels longer than expected.
The U.S. reports consumer price data on Aug. 10.
On Friday, U.S. employment data showed the economy maintained a moderate pace of job growth. Yet wages grew at a faster-than-expected annual clip of 4.4%.
Many fear that is too high to be consistent with the Fed's 2% inflation target. Janasiewicz of Natixis said a stronger-than-expected consumer price reading next week could spark a decline of up to 5% in the S&P 500. He said such a drop would be «healthy» given the index's big runup this year.
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