Stock Market Outlook: What to Watch in the Week Ahead

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What’s on tap for the stock market in the week ahead? Nobody has a crystal ball, but here’s a solid bet: All eyes will be on economic indicators as investors wrestle with the Federal Reserve’s plans for interest rates.

Until the markets start seeing disinflation across both goods and services, inflation will be top of mind as far as hiking monetary policy. And, as experts have previously told Money, investors should likely prepare for more volatility.

Here’s what market watchers will have their eyes on the week of Feb. 27:

1. Clues about the Fed’s next steps in fighting inflation

The Fed hiked interest rates repeatedly throughout 2022 in an effort to curb inflation. Most recently, the central bank raised the federal funds rate in February by 25 basis points — a smaller increase than investors have grown accustomed to. But minutes from its meeting indicate that Fed officials aren’t planning to stop hiking rates anytime soon.

That matters because higher interest rates tend to weigh on the price of financial assets, like stocks.

“What the market is looking for is kind of that Goldilocks environment where the economy slows enough such that inflation continues to keep moderating — but not slows so much that we drop into a recession,” says David Sekera, a senior U.S. market strategist for investment research firm Morningstar.

2. Updated data on home sales and manufacturing

Overall, “a majority of upcoming economic reports are expected to show signs of strength,” says Sam Stovall, chief investment strategist at CFRA Research. That includes data on pending home sales — signed contracts to purchase existing homes — which will be released Monday by the National Association of Realtors.

However, durable goods data, which will also be released Monday, is expected to buck the trend and show some weakness, Stovall says.

Meanwhile, results of the Conference Board’s monthly consumer confidence survey will be released Tuesday and provide an idea of how consumers are feeling about economic activity. This measure is important as it can give insight into how Americans plan to spend.

Quincy Krosby, chief global strategist for LPL Financial, says Institute for Supply Management (ISM) reports — ISM manufacturing on Wednesday and ISM non-manufacturing on Friday — “will offer an important snapshot on the broader economic landscape.”

While the manufacturing sector has been sinking, there are signals that the downturn may have bottomed, Krosby says. The services report has been expanding modestly, and “given that the greater part of the economy is services-driven, the new orders and hiring expectations components could signal continued strength for the economy,” he adds.

3. Earnings reports for Target, Costco and Salesforce

Earnings season may be coming to a close, but there are still some major reports coming out next week experts will be watching.

Target is expected to report its quarterly earnings on Tuesday. Analysts will likely be keeping a close eye on Target’s forward-looking guidance and comparing it to recent guidance from Walmart and Home Depot that indicated the retailers expect consumers to slow spending this year. Costco’s earnings and guidance, expected Thursday, will also like give some insight into how consumers are feeling, Sekera says.

Sekera says he will also be watching earnings reports from Workday and Salesforce, expected Monday and Wednesday, respectively.

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