Earnings bolster U.S. stocks but crucial inflation report looms

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Next week’s release could determine whether the good vibes continue.

A strong earnings season and blockbuster reports from tech industry titans fueled a U.S. stock market rebound from the first real swoon of 2024. Next week’s inflation data could determine whether the good vibes continue.

Still, some investors worry the rally could stall without evidence that inflation is cooling again. While Fed Chairman Jerome Powell has reassured markets the central bank is unlikely to raise rates anytime soon, months of strong inflation have led to concerns that policymakers will not cut them this year.

Economists polled by Reuters expect the May 15 consumer price index report will show an increase of 0.3% in April from the previous month. Investors are also awaiting data on retail sales next week, as well as earnings from Walmart, Home Depot and Cisco. “There’s been enough in terms of upside surprise that’s helped to support the markets,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management. “There was concern that it could even be somewhere between a modest and weak earnings season, which didn’t happen.”

Still, investors have punished companies whose results missed expectations. These shares have underperformed the market by 3.2% this quarter, compared to 1.2% the previous quarter, according to a report from Manish Kabra, chief U.S. equity strategist at Societe Generale.

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