Stock bulls are treading cautiously as they await data later this week that could clarify some of the conflicting signals in recent economic data. Many on Wall Street are worried that a too-strong US economy will keep inflation elevated, which will in turn force the central bank to keep raising interest rates and push the economy into recession.

Consumer spending 

Others fear the US consumer is in worse shape than data indicates as inflation eats away at wages that haven’t kept pace with inflation.

Consumer spending is the main driver of the US economy, accounting for around 70% of GDP. Most of the data for January showed strong economic activity all around but bulls believe a combination of unusually warm weather, low year-ago comparisons, and annual data revisions may have skewed the results.

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February data starts rolling in this week and bulls are looking for any possible clues that the “disinflation” trend remains on track. However, Dallas Fed manufacturing data yesterday showed wage and price pressures continued to climb in February, a bad signal on the inflation front where climbing employee pay has been a key driver.

Housing market 

One area where things have been cooling off considerably is the US housing market, which is also a major inflation contributor. However, January Pending Home Sales blew past expectations yesterday as would-be buyers jumped at a brief dip in mortgage rates. According to data from the National Association of Realtors, it was the largest monthly sales increase since June 2020.

Many housing experts have been warning that US housing prices aren’t likely to see too much contraction due to the lack of supply and pent-up demand. Meaning that the degree to which a softer housing market can pull down inflation may be very limited.

Data to watch today 

Today, investors will be digesting the Case-Shiller Home Price Index, Consumer Confidence, Richmond Fed Manufacturing, and advance reads on International Trade, Retail Inventories, and Wholesale Inventories.

On the earnings front, Target and Ross Stores will be in the spotlight as investors tune in for updates on consumer spending and more insights into the health of the overall retail sector. AutoZone, J.M. Smucker, Monster Beverage, Rivian, and Rocket Companies also report today.

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Wishing you a great week!

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