Inflation will be in the spotlight this week. Two major economic reports on prices are landing just ahead of next week’s key interest rate decision, providing fresh indicators on the cost of living as central bankers debate whether to further lower borrowing costs and investors eye energy prices. Existing-home sales and other housing data comes as economists are watching for improvements in that market. Investors will also be evaluating momentum in the AI and software sectors, with Oracle, Hewlett Packard Enterprise, and Adobe set to report earnings this week. Dollar General leads a string of noteworthy retail earnings, while Tesla’s Chinese EV competitors are also on deck.
Inflation Reports Come as Fed Focuses on Prices
Recent indicators have sent mixed signals on the direction of prices. Wednesday’s release of the Consumer Price Index (CPI) for February arrives after that measure came in lower than expected in January. Later in the week, the release of the Personal Consumption Expenditures (PCE) index for January follows a December report that showed the closely watched inflation indicator rise higher than expected. The Federal Reserve is readying for its meeting next week. There is division among the central bank’s members over whether to further cut interest rates after the central bank recently voted to keep them steady at its last meeting.
Several housing indicators are expected this week, with existing-home sales data coming as buyers have continued to shy away from the market. Housing starts and earnings from builder Lennar are also on the calendar. Investors will be watching trade data for the impacts of tariffs, and the latest consumer sentiment survey may show whether the recent Middle East turmoil is affecting spending trends.
Oracle, Adobe Earnings Keep Investor Eyes on AI Trade
Oracle’s stock price has been more than cut in half from its September highs amid a rout in the software sector. But the cloud computing giant, set to report earnings this week, still has plans for expansion after it recently laid out plans to raise $50 billion to fund AI data center construction. Adobe’s report will also provide a look at the software sector’s strength. Hewlett Packard Enterprise’s report on Monday could also provide insight into AI spending. Analysts said the company’s information technology products and services are likely to be in demand, but the company still issued a disappointing outlook earlier this year. Dollar General’s report will give investors information on the retail sector, with the low-cost seller’s most recent report showing that it’s benefiting from price pressures in the economy. Soup maker Campbell’s, makeup seller Ulta, and pet supplies chain Petco are also reporting this week. Competitors to Tesla in the Chinese EV markets, Li Auto and Nio, are also set to release earnings.
What analysts are saying about U.S. stocks
Morgan Stanley: We remain constructive over a 6-12 month time horizon as earnings growth reaccelerates and the broadening continues. However, the equity market is not immune from further near-term volatility if oil prices continue to rise alongside a strengthening dollar. We favor Quality and Healthcare for those seeking defensive hedges. Our baseline remains that further weakness in the near term sets up an opportunity to add to the cyclical trades we prefer over the intermediate term across Financials, Industrials, Consumer Discretionary and Small Caps. The bear case risk to our positive 6-12 month view would be oil prices over $100/bbl for a multi-month period, and a Fed that does not cut rates or add additional liquidity—i.e., more potential focus on inflation rather than growth risks.”
BTIG: “A break of 6,700 would open the door to a test of the 200 DMA (6582) which would be ~3% lower. In order to get that, we felt semis likely would need to see further pressure, and they certainly did on Friday. Adding it all up our confidence that 6,700 holds has diminished, especially given the move in semis, but a quick flush below 6,700 that approaches the 200 DMA should still prove to be buyable, in our view.”
Evercore: “There is a tense standoff between Fear of Downside (exacerbated by geopolitics) and Greed/FOMO (No Recession, modest Interest Rates, robust Capital Market cycle) lending to a reiteration of our SPX year end 7,750 PT. But tension builds, driving hedging (Fear) in Equity options more extreme than prior scares of the current cycle – all buying opportunities.”
Goldman Sachs: “S&P 500 price action this week has resembled the equity market’s behaviorn during past geopolitical risk shocks. The S&P 500 has declined by 2% since last Friday with large intra-week volatility. During seven geopolitical risk episodes since 1950, the S&P 500 declined by an average of 4% in the first week but recovered within the subsequent month.”
RBC Capital Markets: “We think the stock market is in the midst of a discovery process about how the Iran conflict will evolve (how long it will go, how high it could take oil prices, and other derivative impacts), and that it is too early to make any major changes in assumptions in our modeling at this time. For now, we assume that the stock market will be able to return to the course that it was on before these events unfolded, but the longer the conflict goes on and the higher oil goes, the more likely it is that some of our assumptions will require adjustments.