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Inflation data could be a big deal for markets as investors await new guidance from the Fed

  • Stocks could be volatile in the week ahead, as markets navigate fresh inflation data and count down to the Fed's late March meeting.
  • The bull market will also be starting off its 10th year, with the S&P 500 up about 312 percent from the low it set nine years ago on March 9.
  • Investors will keep a watchful eye on Washington after President Donald Trump slapped tariffs on imports of steel and aluminum in the past week.
Traders work in the S&P 500 options pit at Cboe Global Markets Inc. in Chicago, Illinois.
Daniel Acker | Bloomberg | Getty Images
Traders work in the S&P 500 options pit at Cboe Global Markets Inc. in Chicago, Illinois.

Stocks could be volatile in the week ahead, as markets navigate a fresh release of inflation data and countdown to the Fed's late March meeting.

The bull market will also be starting off its 10th year, with the S&P 500 up about 312 percent from the low it set nine years ago on March 9.

Tuesday is the 10th anniversary of the demise of Bear Stearns, the first major failure of the financial crisis. In the coming week, financial stocks will again be a focus, this time as Congress considers a bill to loosen post-financial-crisis regulation for smaller banks and to also raise the threshold of when a bank is considered so important to the financial system that it requires a higher level of regulation.

"Why this can become the longest bull market in history is because once again the wall of worry is being rebuilt. It had crumbled in January. It's inflation concerns — those are not going away. It's policy concerns. It's Fed communications concerns, and, frankly, if you look at the last month it's concern about potential slowing in both Europe and China," said Julian Emanuel, chief equity and derivatives strategist at BTIG.

Emanuel said he still expects volatile swings, and he doesn't believe the correction that began in late January is over just yet. The Fed meeting could resolve some issues, such as whether the futures market is correct in pricing in just three rate hikes, rather than a fourth as some economists now expect.

Other issues have also concerned the markets, including the tariffs President Donald Trump imposed on steel and aluminum this past week. But the market shook off some of its concerns when he exempted Canada and Mexico for now.

"How does the trade friction unfold? That story is not going away. For us it's an open question," Emanuel said. "… But what we would say is it's very encouraging when you look at the tape. The rally appears to be broadening out into the more cyclical sectors, like financial, energy, materials and industrials," he said.

Emanuel said the ISM manufacturing data in the past week was a sign the bull market can continue to run on, based on history. ISM rose to 60.8 for February, well above the 50 level that signals expansion.

After the ISM crosses 60, as it also did last September, the stock market on average has not peaked for 28 months, according to data going back to 1954. Emanuel also said on average there was no recession for 41 months.

With few earnings in the coming week, investor focus will turn to economic data. The most important are the inflation reports — particularly the consumer price index Tuesday but also producer prices Wednesday. That data should provide the most clues about inflation ahead of the Fed's March 20 and 21 meeting. There is also retail sales for February on Wednesday.

"After having a week full of contradictory Fed speak, we'll be glued to the inflation data because this is a Fed that feels like it wants to raise rates more than consensus. The good news was the jobs report. The February numbers put aside runaway inflation fears," said Art Hogan, chief market strategist at B. Riley FBR.

Stocks soared Friday after February's jobs report showed that hiring was surprisingly strong, with 313,000 jobs added, but wage growth remained tepid,which was a positive since it means there's no inflationary pressure to push the Fed to raise interest rates any faster than currently expected.

Stocks had sold off in February as interest rates spiked on concerns inflation would push the Fed faster than the three interest rate hikes it currently forecasts for this year. The Fed is expected to raise interest rates on March 21, and it will also release new interest rate and economic forecasts that day. That could be when the market is put to the test.

"This is an untested Fed. … Optically, it looks more hawkish than it did last year," said Hogan.

The Nasdaq jumped 1.8 percent Friday, regaining its all-time high to close at a new record of 7,560. The Dow, just under 5 percent away from its all-time high, gained 1.8 percent Friday and 3.3 percent for the week, to 25,335. The S&P 500 gained 3.5 percent for the week to 2,786, and is 3 percent below its all-time high.

What to watch

Monday

Earnings: Oracle, Canadian Solar, Cheetah Mobile

11:30 a.m. $28 billion 3-year note auction

1:00 p.m. $21 billion 10-year note auction

2:00 p.m. Federal budget

Tuesday

Earnings: FedEx, Steelcase, Duluth

6:00 a.m. NFIB survey

8:30 a.m. CPI

1:00 p.m. $13 billion 30-year auction

Wednesday

Earnings: General Mills, Winnebago, Tencent, Eldorado Gold, Wheaton Precious Metals, Five Below, Herman Miller

8:30 a.m. Retail sales

8:30 a.m. PPI

10:00 a.m. Business inventories

Thursday

Earnings: Accenture, ConAgra, Darden Restaurants, Nike, Michael Cos, Micron

8:30 a.m. Initial claims

8:30 a.m. Import prices

8:30 a.m. Empire State manufacturing

8:30 a.m. Philadelphia Fed manufacturing

10:00 a.m. Homebuilders survey

4:00 p.m. Treasury capital flows

Friday

8:30 a.m. Housing starts

8:30 a.m. Business leaders survey

9:15 a.m. Industrial production

10:00 a.m. Consumer sentiment

10:00 a.m. JOLTS

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