U.S. edged lower early Monday ahead of important inflation data in coming days, while gauging the possibility of a shutdown of the federal government at the end of the week.

What’s happening

  • The Dow Jones Industrial Average
    was down 42 points, or 0.1%, at 34,242.

  • The S&P 500
    fell 19 points, or 0.4%, to 4,396.

  • The Nasdaq Composite
    shed 93 points, or 0.7%, to 13,705.

The Dow, S&P 500 and Nasdaq Composite rose Friday to score back-to-back weekly gains.

What’s driving markets

The S&P 500 has jumped 7.2% over the past two weeks, helped by benchmark borrowing costs
falling swiftly from 16-year highs on hopes that recent softer jobs data means inflation can ease further and the Federal Reserve has thus finished its campaign of interest rate rises.

However, after that strong rally a more cautious tone prevails at the start of the new week as the market awaits a U.S. consumer-price index report for October, due Tuesday, that thus has the heft to underpin the latest bull run or bring it to a halt.

Read: Stock-market rally faces make-or-break moment. How to play U.S. October inflation data.

Core CPI growth — which strips out volatile items such as food and energy — is expected to remain steady at 0.3% month-on-month. The producer prices report for October will be published on Wednesday.

See: This week’s October inflation data looms large on Washington’s economic radar

October retail sales data is also on the docket this week, offering further clues to the health of the consumer on Wednesday.

“Most eyes will be focused on the latest inflation numbers, but retail sales and retail earnings will also help set the tone,” Chris Larkin, managing director of trading and investing at E-Trade from Morgan Stanley, said in emailed comments.

He warned that the market “may be a little more jittery than usual,” following a downgrade of the U.S. credit outlook by Moody’s Investors Service and the possibility of a shutdown of the federal government at the end of the week.

Also see: House Republicans look to pass two-step package to avoid partial government shutdown

Worries over a dysfunctional government contributed to Moody’s Investors Service late Friday cutting its outlook on the U.S. sovereign credit rating to negative from stable.

“This week, we will plunge back into the U.S. political saga, as the government short-term funding deadline is due 17th of November and not much progress has been made to seal a fresh deal,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“Depending on the new funding resolution – or the lack thereof – we could see the U.S. 10-year yield return above 4.80%,” Ozkardeskaya added.

Investors will also be keeping an eye out for a slew of earnings reports from retailers, including Home Depot Inc.

on Tuesday, Target Corp.

on Wednesday and Walmart Inc.

on Thursday. Their comments on the health of the consumer may also play into thinking on the Fed.

Indeed, the earnings season in general should have provided fundamental support to investor sentiment, according to analysts. “For Q3 2023, with 92% of S&P 500 companies reporting actual results, 81%…have reported a positive earnings per share surprise and 61%…have reported a positive revenue surprise,” said John Butters, senior earnings analyst at FactSet.

The U.S. federal budget update for October will be published at 2 p.m. Eastern. Fed Governor Lisa Cook was due to deliver opening remarks at a Fed conference Monday morning.

Companies in focus

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