What happens to the S&P 500 after the CPI figures on Friday?

 

Strong earnings reports from IT behemoths Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL), along with an in-line PCE report for March, helped the S&P 500 gain 2.7% last week.

This is true even though the stock price of Meta Platforms (NASDAQ:META) had a substantial decrease of more than 10% in response to an increased capex/opex estimate.

This quarter, S&P 500 businesses that exceeded earnings predictions outperformed their peers by a median of just 0.2%, while those that missed estimates saw a median share underperformance of 4%, the biggest difference in at least eight years.

What action will Fed take next? Economists talk about

Apart from the Q1 earnings season, last week's focus was also on inflation figures. Core PCE inflation for March increased by 2.8% annually and by 0.32% month over month.

Because of this, Citi economists predict that the Federal Reserve will decrease interest rates in July, for a total of 100 basis points this year. The bank points out that although activity data—especially in the labour market—may lead to a June drop, spending data in March was strong, with the strength of services seeming to be focused in industries like healthcare.

"With just one month of inflation data for April before the June FOMC meeting, officials will likely have to wait until July to gain 'greater confidence' that inflation is slowing," the study stated.

The headline and core price deflators for March were as anticipated, according to Evercore ISI experts, but the estimates for January and February were revised higher.

They predict that in April, there will be a +200K growth in payroll employment, a decrease in the unemployment rate to 3.7%, and a rise in average hourly wages of +0.3% per month or 4.1% per year.

Alternatively, the economists at Bank of America stated that the data from Friday "is indicative of strong demand rather than "stagflation"."

"That should keep the Fed on hold in the near term," they said. 

With Apple (NASDAQ:AAPL) reporting earnings on Thursday and Amazon (NASDAQ:AMZN) reporting earnings on Tuesday, the upcoming week is sure to be exciting.

In addition, following a two-day meeting, the Federal Reserve is expected to announce its monetary policy statement on Wednesday.

Navellier & Associates said the FOMC statement and meeting this week are "going to be a big deal."

"The Fed typically cuts key interest rates before Presidential elections and this year is expected to be no different so the Fed interest rate cuts are still in the pipeline as Fed Chairman Jerome Powell has telegraphed," they stated.

"But we will see what the Fed thinks going forward."