Stocks concluded last week on a high note as softer-than-expected inflation data fueled investor optimism about potential interest rate cuts. The Nasdaq Composite rose over 3%, and the S&P 500 increased nearly 1.5%, ending above 5,400 for the first time ever. Both indices closed at record highs for four consecutive days, while the Dow Jones Industrial Average slid more than 0.7%.

A quieter week ahead includes the May retail sales report and updates on manufacturing and services activities, along with weekly jobless claims. Markets will be closed on Wednesday for the Juneteenth holiday.

Inflation and Interest Rates

The May Consumer Price Index (CPI) showed “core” CPI increased by 0.2% month over month, the lowest reading since June 2023. The “core” Producer Price Index (PPI) was unchanged from April, below the expected 0.3% increase. This data supports the view that disinflation is the most likely path forward, suggesting that the Fed might reduce its policy rate later this year.

Economic Outlook

Bank of America economist Stephen Juneau noted that recent inflation data reduces the likelihood of the Fed raising rates again, though quick rate cuts are also unlikely. Renaissance Macro’s Neil Dutta emphasized that unemployment is up and core inflation is down, suggesting it’s time for the Fed to “stick the landing” with policy adjustments.

Retail Sales and Consumer Spending

The May retail sales report, expected on Tuesday, is a key indicator of consumer resilience amid higher rates. Economists forecast a 0.3% increase, which would signal a rebound from April’s flat performance.

Market Impact

The latest inflation data has buoyed the stock market rally, with both the S&P 500 and Nasdaq hitting record highs. UBS’s Jonathan Golub believes this data could provide even greater upside to the market.

Upcoming Economic Data and Earnings

Monday: Empire manufacturing index

Tuesday: Retail sales, industrial production; Earnings from KB Home

Wednesday: Markets closed for Juneteenth

Thursday: Initial jobless claims, housing starts, building permits; Earnings from Accenture, Kroger

Friday: Leading index, S&P Global US manufacturing, services, and composite PMIs; Earnings from CarMax, FactSet