As this earnings season begins to wind down, Wall Street this week turns its focus to a key measure of retail inflation, which we hope will show a further slowdown in gains. The stock market, after a strong start in 2023, has been particularly sensitive again to increases in bond yields on concerns the Federal Reserve may not be able to pull back on tightening to fight elevated price pressures as soon as hoped. Looking forward The January consumer price index (CPI) , which calculates the average change over time in prices that shoppers pay for goods and services, is slated for Tuesday. We are looking for smaller price increases — but not too much — to show the Fed’s interest rate-raising efforts to beat inflation is working. Economists and investors will use the number to gauge the odds of a soft landing or hard landing for the economy. The CPI advance year-over-year in December of 6.5% marked the smallest 12-month increase since October 2021. That was down from a 7.1% gain in November. The producer price index (PPI) for January, which calculates the change in selling prices received by producers of goods and services, is out on Thursday. The PPI doesn’t influence the Fed’s decisions as much as the CPI. But PPI readings can predict the direction of future consumer price readings because they show whether producers need to pass higher costs along to shoppers. Squeezed in the middle on Wednesday, January numbers on retail sales are out. A month-over-month gain of 1.5% is expected after a 1.1% decline in December. In addition to the economic data, the market will work its way through the rest of the quarterly earnings reports from Corporate America. The results so far have come in better than expected. Out of the more than two-thirds of the S & P 500 companies that have reported, 69% had positive earnings surprises and 63% had positive revenue surprises. In the Club, quarterly results from Devon Energy (DVN) are released after the closing bell Tuesday but the post-earnings conference call won’t be until the next morning. Dow stock Cisco Systems (CSCO) reports after the bell Wednesday and holds its conference call shortly thereafter. As always, our focus is to look beyond the headline numbers to the forward guidance, as well as any relevant commentary from management on the calls. The CPI number may provide more quantitative data than management commentary, but it’s backward-looking and heavily skewed by housing data as we wrote about a month ago….
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