With a majority of S & P 500 companies having posted their quarterly results, investors’ focus will turn toward inflation and the consumer price index reading in the upcoming week. The three major indexes are on pace to end the week down, with the S & P 500 poised to post its worst performance since December. Despite the losing week, all three averages are still up for the year, underscoring the strength of January’s rally. Those weekly losses come despite a rally Tuesday that sent the Dow Jones Industrial Average up 250 points and the Nasdaq Composite 1.9% higher than where it started the session on the back of Federal Reserve Chair Jerome Powell’s latest comments . The Nasdaq is slated for the largest weekly loss of the three benchmarks, down more than 2% as of Friday afternoon. Sharp declines for Alphabet , which is off by more than 9% this week, dragged the tech-heavy index. .IXIC .SPX,.DJI 5D mountain The three major indexes In a conversation at The Economic Club of Washington, D.C. on Tuesday, Powell said inflation had started coming down but there was still a long way to go. That echoed comments he made the week prior at a news conference that followed the announcement of the latest interest rate hike of 25 basis points. But Shana Sissel, founder of Banríon Capital Management, said the market took dips later in the week as investors repositioned while “digesting” the full extent of the interest rate hike, economic data and commentary from Fed speakers. She noted last Friday’s jobs data , which smashed expectations and pointed to continued strength in the labor market, as one of the crosscurrents investors had to weigh. Further, some said the market initially overlooked parts of Powell’s commentary in favor of the language around inflation starting to come down, which they said bodes well for those hoping to avoid a recession. “Investors are only hearing what you want to hear,” said Eric Sterner, chief investment officer at Apollon Wealth Management. “People were just taking … that Powell said ‘disinflationary’ and running with it. We’re not listening to the whole context.” Earnings season also continued playing over the course of the week, headlined by well-known consumer-focused companies such as Disney , Chipotle and PepsiCo . Disney was on pace to end the week down more than 2%. The decline occurred in spite of Disney’s latest quarterly report, which showed smaller-than-expected subscriber losses at its streaming service, along with earnings and revenue that beat analysts’ estimates. As of midday Friday, just under 70% of companies within the S & P 500 had reported earnings, according to FactSet. Of those companies, around 70% reported exceeding expectations, a smaller share than the three-year average calculated by The Earnings Scout. January’s consumer price index With the latest Powell speech in the books, investors are now looking ahead to the consumer price index for insight into the pace of inflation. The January reading for the index, which follows the prices of a wide basket of goods as a gauge of inflation, is due Tuesday. Economists polled by Dow Jones forecast a 0.4% increase in headline CPI on a monthly basis and a 6.2% gain from the prior year. Market observers will closely follow the CPI reading because they see the Fed’s next moves as closely aligned with how inflation moves. “Next week is really all about one thing, and that one thing is CPI,” said Scott Ladner, chief investment officer at Horizon Investments. “If it continues to show signs of disinflation, and continues to show signs of being under control or heading in the right direction, the Fed can allow growth to remain strong.” Hopes for a continued downtrend after December’s 0.1% drop on a monthly basis may be difficult, according to Vanguard senior economist Andrew Patterson, given the likelihood that shelter inflation will remain elevated. But Patterson said some indicators such as data from Zillow indicate the pace of housing costs could slow toward the middle of 2023, while data in the services sector also shows signs of cooling. Those findings bolster his prediction that inflation will end the year lower. While Patterson expects inflation to end the year below 3%, he said it may not get closer to the 2% marker — the Fed’s target — until the end of 2024. Investors will also closely watch retail sales data for any signs of weakening consumer health, said Sal Bruno, chief investment officer of IndexIQ. Economists predict that retail sales rose by 1.7% in January, according to Dow Jones. “Retail sales and CPI is really driven by the consumer, and a lot of eyes are on how the consumer doing,” Bruno said. “That can go a long way towards trying to set the tone for the following week in terms of set actions based on those numbers.” The final leg of earnings season also continues next week, with companies such as Coca-Cola , Marriott , Cisco , Marathon and Paramount set to report. Week ahead calendar Monday Earnings: Arista Networks , Cadence Design Systems Tuesday Earnings: Leidos Holdings , PerkinElmer , Coca-Cola, Marriott International, Zoetis , Eversource Energy , Exelon , Howmet Aerospace , FirstEnergy , Ecolab , Akamai Technologies 6 a.m.: NFIB Small Business Index [January] 8:30 a.m.: Consumer price index [January] 1 p.m.: Philadelphia Fed President Patrick Harker speaks Wednesday Earnings: Biogen , Waters , Fidelity National Information Services , Westinghouse Air Brake Technologies , Kraft Heinz , Analog Technology , Generac , Martin Marietta Materials , Devon Energy , Cisco Systems, Republic Services , Synopsys , Equinix 8:30 a.m.: Empire State Index [February] 8:30 a.m.: Retail sales [January] 9:15 a.m.: Industrial production [January] 10 a.m.: Business inventories [December] 10 a.m.: NAHB Housing Market Index [February] Thursday Earnings: Epam Systems , AIG , Hasbro , Organon , Paramount Global, Rollins , Zebra Technologies , Albemarle , American Water Works , LabCorp , Marathon Oil, Welltower , Constellation Energy , EQT , Henry Schein , Host Hotels & Resorts , Tyler Technologies , CF Industries , Entergy , Invitation Homes , Pool , Vulcan Materials , Southern Co. , Applied Materials , Bio-Rad Laboratories , Digital Realty Trust 8:30 a.m.: Housing starts and building permits [January] 8:30 a.m.: Jobless claims 8:30 a.m.: Philadelphia Fed index [February] 8:30 a.m.: Producer price index [January] Friday Earnings: CenterPoint Energy , Deere , PPL 8:30 a.m.: Import and export prices [January] 10 a.m. ET: Leading indicators [January]
