Market Minute: Market Prep for this Week

Last week, the market processed a substantial amount of economic data. The Consumer Price Index (CPI) came in slightly higher than expected, but the Shelter component, which accounts for approximately 35% of the total headline CPI, showed a notable deceleration, increasing by only 0.2% month-over-month. This broke the upward trend seen over the past two months. If the Shelter component continues to increase at this slower rate of 0.2% month-over-month, it may, over time, help the Federal Reserve achieve its 2% inflation target.

However, inflationary pressures were still evident in other areas. Transportation services continued to accelerate at a faster pace than analysts had anticipated, and Food at Home experienced its largest month-over-month increase since January 2023. Despite this, the market responded positively to the data, buoyed by a strong labor market, as indicated by the latest monthly jobs report. The unexpected rise in initial jobless claims was largely dismissed, attributed to the effects of Hurricane Helene and potential residual impacts from the recent, brief port strike.

Looking ahead to this week, the market's attention will turn to the industrial and manufacturing sectors. Key consumer data, including Retail Sales on Thursday and Housing Starts and Building Permits on Friday, will also be in focus.

Additionally, this week marks the first full week of earnings season. According to FactSet, the expected blended earnings growth rate for the third quarter of the S&P 500 is 4.1%, a modest figure but typical for the season. Revenue growth is projected at 4.6%, with the Energy sector being the only sector expected to report a year-over-year decline in revenue, down by 4.2%. Regional banks will be the major focus for me this week as that may be the final data point that confirms the “soft-landing” narrative, and if earnings surprise the market’s expectations and their guidance paints an optimistic picture for the broader economy the small-cap may finally see a sustainable breakout since regional banks provide a great chunk of earnings power for the Russell 2000.