What to know in the markets this week

This week, investors will be faced with new data on the state of inflation, as the Federal Reserve scrambles to cut rapidly rising prices. Quarterly earnings season will also continue, with a closely watched group of stock index components reporting results.

The Bureau of Labor Statistics’ consumer price index (CPI) for April, due for release on Wednesday, will be one of the most closely watched economic reports this week. The headline index is expected to slow both month-over-month and year-over-year, offering a tentative sign that the rate of price increase may have peaked in March.

Specifically, consensus economists expect the broader CPI measure to rise 8.1% in April, down from March’s 8.5% advance. That increase marked the fastest rate since 1981. Month-on-month, the headline CPI is expected to rise just 0.2%, also down sharply from March’s 1.2% rise.

Excluding volatile food and energy prices, the core CPI measure is anticipated to slow to a 6.0% annual increase. That would be the slowest rate since December, following March’s 6.5% year-on-year rise in core CPI.

A moderation in energy prices is likely to contribute significantly to the slowdown in headline CPI. The prices of crude oil, gas and other energy products soared in late February and March following Russia’s initial invasion of Ukraine. While energy and other supply chain disruptions related to these geopolitical concerns persisted, the rate of price appreciation from these events temporarily slowed.

“After driving headlines in March, energy prices will be a sizable drag reflecting a decline in retail gasoline prices along with seasonal headwinds,” Bank of America global economist Ethan Harris wrote in a statement. note Friday. “In the meantime, food prices should stay high. If our forecast turns out to be correct, yoy [year-over-year] headline inflation would fall from 8.5% to 7.9%, which would confirm March as the peak of year-on-year inflation.”

However, within core inflation, some heavily weighted categories are still expected to remain hot, keeping inflation elevated, albeit off peak rates. Rents, in particular, are expected to continue rising, reflecting higher demand as rising home prices and mortgage rates keep many buyers on the sidelines.

“Food, energy and housing are the categories worth watching, but housing is of particular concern,” Greg McBride, chief financial analyst at BankRate, said in an email Friday. “Housing accounts for 40% of the CPI, as it does for many household budgets, and with double-digit increases in rents, this puts the household budget in a vise, even if food and energy costs level off.” .

More importantly, even if inflation rates come down from records, prices would still rise at steps well above pre-pandemic trends and the Federal Reserve’s targets for the US economy this week. Last week, the central bank launched its first 50 basis point interest rate hike since 2000 and announced the start of a quantitative tightening, in some of the first moves to try to address the demand-side factors keeping prices elevated. throughout the economy.

A worker walks past a wholesale market on May 4, 2022 in Washington, DC (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images)

The latest inflation reports will show how far the Fed has to go to bring inflation rates back close to its 2% targets.

The Fed has also telegraphed that its top priority now is to reduce inflation, even if it means sacrificing some economic growth. Investors are closely watching whether the Fed can balance its goal of tackling inflation and avoiding triggering a significant economic downturn.

“I think right now investors have to weigh the two outcomes that we’re facing, which is basically a soft landing, where the Fed can control inflation without taking the economy into a recession, and a hard landing, where the Fed has to tighten too much and drive growth into negative territory,” Robert Dent, a Nomura vice president and a US economist, told Yahoo Finance Live on Friday.

“I also think part of what’s going on is that the markets may have been too focused on Chairman Powell’s comments on Wednesday against 75 basis point hikes and missed the broader point of the meeting, which was that the Fed is still is very in a way that [they will do] Whatever it takes to control inflation, I think they are prepared to raise rates to a very restrictive level.”

Disney Earnings

This week, earnings season will continue with another busy schedule of reports scheduled for release.

Disney (DIS), a member of the Dow Jones Industrial Average, will be one of the companies scheduled to report results. Its diversified businesses, between its theme parks, movie studios and streaming services, have positioned the company as a part of both the stay-at-home and reopening trades.

But this earnings season, Disney’s streaming business will be the main focus after Netflix’s disappointing report last month. In that impression, Netflix unexpectedly posted its first decline in subscriber growth for the first time in a decade, saying it expected to lose another 2 million paying users in the current quarter.

People visit the Magic Kingdom park at Walt Disney World Resort in Lake Buena Vista, Fla., on Friday, April 22, 2022. (AP Photo/Ted Shaffrey)

People visit the Magic Kingdom park at Walt Disney World Resort in Lake Buena Vista, Fla., on Friday, April 22, 2022. (AP Photo/Ted Shaffrey)

Netflix attributed the loss of subscribers to a combination of competition, saturation in its main North American market, password sharing and, to a lesser extent, its exit from Russia following the country’s invasion of Ukraine. While Disney+ hadn’t officially launched in Russia to begin with, Disney announced in March that it would also be halting all business in the country, including the release of new movies.

Consensus analysts are also looking for a subscriber slowdown for Disney’s flagship Disney+ streaming service. According to Bloomberg estimates, Wall Street expects Disney+ subscribers to increase by around 4.2 million for the company’s second fiscal quarter. This would bring total subscribers to around 134.1 million. Subscribers during the same period last year increased by 8.7 million and in the previous quarter they increased by 11.7 million.

But while Disney+ is likely to see a slowdown in growth, Disney’s parks, experiences and consumer products business division is expected to see even more growth. Analysts expect the unit to generate $1.61 billion in operating profit on revenue of $6.1 billion. In the same quarter last year, the theme parks unit posted an operating loss as virus-related restrictions affected consumer mobility.

Disney is expected to report adjusted earnings per share of $1.18 on revenue of $20.12 billion for its fiscal second quarter. Disney shares are down almost 30% so far this year, underperforming the S&P 500 by more than 13% during that period.

economic calendar

  • Monday: Wholesale inventories, month over month, end of March (2.3% expected, 2.3% in previous report); Wholesale trade sales, month over month, March (1.8% expected, 1.7% in previous report)

  • Tuesday: NFIB Small Business Optimism Index, April (92.9 expected, 93.2 as of previous print)

  • Wednesday: MBA mortgage applications, week ended May 6 (2.5% over the previous week), consumer price index, month on month, April (0.2% expected, 1.2% in March); Consumer Price Index excluding food and energy, month on month, April (0.4% expected, 0.3% in March); Consumer Price Index, year over year (8.1% expected, 8.5% in March); Consumer Price Index excluding food and energy, year-over-year, April (6.0% expected, 6.5% in March); Monthly Budget Statement, April ($220.0 billion expected, -$192.7 billion in March)

  • Thursday: Producer Price Index, month over month, April (0.5% expected, 1.4% in March); Producer Price Index excluding food and energy, month on month, April (0.6% expected, 1.0% in March); Producer Price Index excluding food and energy, year over year, April (8.9% expected, 9.2% in March); Initial jobless claims, week ending May 7 (190,000 expected, 200,000 during prior week); Continuing claims, week ended April 30 (1.384 million during the previous week)

  • Friday: Import Price Index, month on month, April (0.7% expected, 2.6% in March); Import Price Index, year-on-year, April (1.2% expected, 1.1% in March); Export Price Index, month over month, April (0.7% expected, 4.5% in March); Export Price Index, interannual, April (18.8% in March); University of Michigan Sentiment, May Preliminary (64.0 expected, 65.2 in April)

earnings calendar

Monday

Before market opening: Coty Inc. (COTY), Blue Apron (APRN), Duke Energy Corp. (DUK), Palantir Technologies (PLTR), Tyson Foods (TSN)

After Market Close: Vroom (VRM), Simon Property Group (SPG), Lemonade Inc. (LMND), Novavax (NVAX), AMC Entertainment (AMC), Plug Power (PLUG), Zynga (ZNGA)

Tuesday

Before Market Open: Hyatt Hotels (H), Warner Music Group (WMG), Peloton (PTON), Norwegian Cruise Line Holdings (NCLH), Planet Fitness (PLNT)

After Market Close: Roblox (RBLX), Occidental Petroleum (OXY), Coinbase (COIN), Sofi Technologies (SOFI), Allbirds (BIRD), Rocket Cos. (RKT), Wynn Resorts (WYNN), Electronic Arts (EA)

Wednesday

Before the market open: Yeti Holdings (YETI), Olaplex (OLPX), Krispy Kreme (DNUT)

After Market Close: Disney (DIS), Rivian Automotive (RIVN), Bumble (BMBL), Sonos Inc. (SONO), Beyond Meat (BYND), Dutch Bros. (BROS)

Thursday

Before market opening: WeWork (WE), Six Flags Entertainment (SIX)

After Market Close: Affirm (AFRM), Figs Inc. (FIGS), Toast Inc. (TOST)

Friday

There are no notable reports scheduled for publication

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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