The stock market’s rally after October’s inflation report will be tested in the week ahead, as investors watch some major retailers’ earnings and a flurry of Federal Reserve speakers. But the main event is the market itself and whether it can turn a supercharged move higher into a more lasting rally that lifts stocks into the end of the year. The major averages were higher again Friday after a cooler-than-expected consumer price index Thursday triggered the best day for stocks in two years. CPI for October was up 7.7% over a year ago, lower than the 7.9% pace expected. Stocks finished the week with strong gains Friday afternoon. The tech sector was up 10% for the week. The Nasdaq Composite powered ahead of other indexes, and was up more than 8% for the week. This week, bond yields also came off their highs and were sharply lower, paving the way for gains in tech and growth shares. “The CPI was better than expected, elections came out with minor gridlock, earnings haven’t been a disaster,” said Art Hogan, chief market strategist at B. Riley Financial. “It just shows there’s probably support for equities, and the calendar is favorable. The midterm election cycle has a perfect track record of being better six months down the road.” Market pros will continue to watch for any spillover from the selloff in cryptocurrencies, following the dramatic implosion of crypto exchange FTX. FTX filed bankruptcy Friday. “There’s a correlation between the crypto correction and risk assets…The FTX wipeout is not the last we hear of it,” said Hogan. “There’s probably linkages to other players, but it’s hard to know.” What to watch Earnings are expected from Walmart and Home Depot Tuesday, Other retailers, like Target and Macy’s also report that week. Those store chains should provide a look at how consumers are dealing with higher interest rates and inflation. Another glimpse at consumer behavior will come when the Census Bureau releases October retail sales report, expected Wednesday. According to Dow Jones, it is expected to show a 1.2% jump in retail sales, up from a flat result the month before. Real estate data will also be released, with housing starts Thursday and existing home sales Friday. Both are expected to be weaker as rising mortgage rates take a toll on the sector. The Empire State manufacturing survey is released Tuesday, and the Philadelphia Fed manufacturing survey is released Thursday. “I’m going to be watching retail sales for sure, and we get our first November industrial numbers with the New York and Philly Fed,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “To me, those are the most relevant things and then technically to see if there’s any follow-through on bonds and whether the Treasury move has more to it.” On the geopolitical front, any progress from a meeting in Indonesia Monday between President Joe Biden and China President Xi Jinping could be positive for market sentiment. “I understand the angst with China, but it’s in nobody’s interest to be be going head-to-head with the second biggest economy. if anything could just cool tempers, that would be a good thing,” Boockvar said. Reprieve from rising rates Investors will also be watching closely to see if the reprieve from rising rates in the Treasury market continues in the coming week. The closely watched benchmark 10-year yield ended Thursday at 3.81%, after falling more than 30 basis points after the CPI report. [A basis point equals 0.01 of a percentage point]. The cash bond market was closed Friday for Veterans’ Day. “Was that a relief rally and that was it? People are going to feel much more comfortable with the 10-year yield below 4% than above 4%,” said Boockvar. The 10-year is key since it influences mortgage rates and many consumer and business loans. The drop in the 10-year yield, which moves opposite price, also helped drive a sharp rally in tech and growth names. Those high-priced stocks, which are priced on future earnings, benefit most from low rates and cheap money. The test for yields could come in the first days of the coming week. The action in stocks will be important, as market pros watch to see if the rally has legs or is derailed by the parade of Fed speakers. They include Fed Vice Chair Lael Brainard, New York Fed President John Williams and Minneapolis Fed President Neel Kashkari to name a few. “Everybody on the Fed is hawkish. There’s just a degree of hawkishness — moderate and uber,” said Hogan. “I think the market has started to pay increasing attention to the growing chorus of moderate hawks.” Hogan said that group includes Bullard, Brainard and San Francisco Fed President Mary Daly. “I think that group grows next week,” he said. Hogan said Fed officials could push the message that the central bank is slowing its hiking pace but will continue to hold rates high. The Fed announced it could hike by 50 basis points as soon as the December meeting, following four 75 basis point hikes. The message would be “let’s slow the pace, and see if there’s any effect,” said Hogan. “It’s a well-known fact that monetary policy has long and variable lags.” Paul Christopher, head of global market strategy at Wells Fargo Investment Institute, said the market could be getting ahead itself in its bullishness over the inflation report. “CPI beat by two ticks. What if it misses by two ticks next month?” he said. Christopher said the Fed will ultimately stop raising rates but will not cut them, and stocks will face even more challenges this year. “I think the market is probably going to reevaluate itself after its euphoria… You still have to get through another inflation report and another Fed meeting,” he said. “Inflation is still pretty sticky at services level,” he said. “…We think illiquidity is what comes next.” Technically speaking There’s an active debate in the market as to whether the surge Thursday was the start of a year-end rally, since the market has mostly been positive in the fourth quarter of midterm election years. Many strategists are calling the move higher a bear market rally, and some expect it will fizzle in December while others say it could continue into the new year. “Thursday’s surge surpassed even what options markets were expecting for volatility post CPI. Equities, Treasuries and currencies all showed some of the largest movement seen in years. [The S & P 500’s] move above late October highs puts a major decline on the back burner for the time being,” writes Mark Newton, Fundstrat head of technical strategy. The S & P 500 gained 5.5% Thursday, its best day since April 2020. “The real question of whether ‘the low’ is in all has to do with whether Technology has truly bottomed along with Treasuries. I’m inclined to say no on both counts,” Newton wrote in a note. Newton said he expects stocks could continue to trend higher for now, and 4,100 on the S & P 500 is a strong resistance level. “If reached into early December, one would consider that an area where [the S & P 500] should stall out and backtrack into 2023,” he noted. For short-term investors, he advises them to stay bullish unless 3,859 is broken and then watch for 3,700 below that. Newton points out that peaks in August, September and October were reached mid-month, while June and July saw mid-month troughs. He said that suggests there could be a short-term top leading to weakness on Nov. 22 and 23. “My take is that selloffs into that time should be buyable, and it will only be necessary to truly turn bearish again if 3,700 is broken which might not occur until next year,” he added. Week ahead calendar Monday Earnings: Tyson Foods, BuzzFeed, ThredUp , Oatly, Aecom 11:30 a.m. Fed Vice Chair Lael Brainard 6:30 p.m. New York Fed President John Williams Tuesday Earnings: Walmart, Home Depot , Vodafone, Krispy Kreme, Tencent Music, Valvoline, Energizer, Aramark, Advance Auto Parts 8:30 a.m. PPI 8:30 a.m. Empire State manufacturing 9:00 a.m. Philadelphia Fed President Patrick Harker 9:00 a.m. Fed Governor Lisa Cook 10:00 a.m. Fed Vice Chair for Supervision Michael Barr at Senate Banking Wednesday Earnings: Target, Cisco , Lowe’s, Tencent Holdings, Shoe Carnival , TX, Grab Holdings, NVIDIA , Copa Holdings, Bath and Body Works, Sonos 8:30 a.m. Retail sales 8:30 a.m. Import prices 8:30 a.m. Business leaders survey 9:15 a.m. Industrial production 9:50 a.m. New York Fed’s Williams 10:00 a.m. Fed Governor Barr at House Committee on Financial Services 10:00 a.m. Business inventories 10:00 a.m. NAHB survey 2:35 p.m. Fed Governor Christopher Waller 4:00 p.m. TIC data Thursday Earnings: Applied Materials , Alibaba, Macy’s, Siemens, Burbery, BJ’s Wholesale, Kohl’s, NetEase, Pershing Square, Weibo, Gap, Palo Alto Networks, Ross Stores, Post Holdings 7:30 a.m. Atlanta Fed President Raphael Bostic 8:00 a.m. St. Louis Fed President James Bullard 8:30 a.m. Initial claims 8:30 a.m. Housing starts 8:30 a.m. Philadelphia Fed manufacturing 9:15 a.m. Fed Governor Michelle Bowman 9:40 a.m. Cleveland Fed President Loretta Mester 10:40 a.m. Fed Governor Philip Jefferson and Minneapolis Fed President Neel Kashkari 1:45 p.m. Minneapolis Fed’s Kashkari 6:15 p.m. Chicago Fed President Charles Evans, Fed Chair Jerome Powell, San Francisco Fed President Mary Daly, and New York Fed’s Williams at event celebrating Evans. No policy comments are expected. Friday Earnings: JD.com, Foot Locker, Buckle 8:40 a.m. Boston Fed President Susan Collins 10:00 a.m. Existing home sales 10:00 a.m. Leading index 10:00 a.m. Quarterly services survey
