Week Ahead on Wall Street: Inflation Anomaly

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The January Effect

The first inflation data of the new year is upon us this week, and as usual, investors will look to it for clues on broader price trends. However, the upcoming Consumer Price Index (CPI) release also brings into focus what some market watchers refer to as the “January effect.” Here’s what that means.

In a nutshell, the January effect is the tendency for hot inflation data in the first month of the year. Considering that economists deploy sophisticated seasonal adjustment techniques to remove such patterns from the data, this tendency shouldn’t even exist, yet it does.

Here are some potential reasons: Businesses usually update their prices at the beginning of a year, but just how much they decide to raise them depends a lot on the macro environment and broader behavioral forces. Moreover, the January effect has actually intensified post-COVID, as businesses and consumers dealt with high inflation.

This residual seasonality presents a big challenge in interpreting economic data at a time where the stakes are high and questions about the Federal Reserve’s future policy path are rampant. For context, investors don’t expect the next interest rate cut until June or July, but a hot inflation read could push those expectations out toward the end of the year. On the other hand, a weaker print could give the Fed the confidence to resume cutting rates as soon as their next meeting in March.

Economic and Earnings Calendar

Monday

•   January New York Fed Survey of Consumer Expectations: This is a measure of peoples’ expectations for inflation, jobs prospects, earnings growth, and more.

•   Earnings: Arch Capital Group (ACGL), Cincinnati Financial (CINF), Incyte (INCY), Loews (L), McDonald’s (MCD), ON Semiconductor (ON), Rockwell Automation (ROK), Vertex Pharmaceuticals (VRTX)

Tuesday

•   January NFIB Small Business Optimism: This measures how small business owners feel about current and future economic conditions.

•   Fedspeak: Cleveland Fed President Beth Hammack will discuss the economic outlook. New York Fed President John WIlliams will deliver keynote remarks followed by moderated Q&A at a Pace University Economics Society event.

•   Earnings: American International Group (AIG), Assurant (AIZ), Carrier Global Corp (CARR), DuPont de Nemours (DD), Ecolab (ECL), Eversource Energy (ES), Edwards Lifesciences (EW), Fidelity National Information Services (FIS), Gilead Sciences (GILD), Humana (HUM), Coca-Cola (KO), Leidos Holdings (LDOS), Marriott International (MAR), Masco (MAS), S&P Global (SPGI), Welltower (WELL)

Wednesday

•   January Consumer Price Index: The CPI is one of the most popular indicators for tracking consumer price trends and is a marquee release for market watchers.

•   January Treasury Statement: This summarizes the U.S. federal government budget by tracking government revenues and expenditures.

•   Weekly Mortgage Applications: Mortgage activity gives insight on demand conditions in the housing market.

•   Fedspeak: Fed Chair Jerome Powell will testify to the U.S. House Committee on Financial Services on the Fed’s Semi-Annual Monetary Policy Report. Atlanta Fed President Raphael Bostic will discuss the economic outlook at an Atlanta Fed event.

•   Earnings: Albemarle (ALB), Biogen (BIIB), CME Group (CME), Cisco (CSCO), CVS Health (CVS), Dominion Energy (D), Equinix (EQIX), Exelon (EXC), Generac Holdings (GNRC), Interpublic Group of Companies (IPG), Kraft Heinz (KHC), MGM Resorts International (MGM), Martin Marietta Materials (MLM), NiSource (NI), Paycom Software (PAYC), Rollins (ROL), Smurfit WestRock (SW), Tyler Technologies (TYL), Ventas (VTR), Westinghouse Air Brake Technologies (WAB), Waters (WAT), Williams Companies (WMB)

Thursday

•   January Producer Price Index: The PPI tracks price trends that producers face and is down significantly from its peak earlier in the cycle.

•   Weekly Jobless Claims: This high frequency labor market data gives insight into filings for unemployment benefits. Jobless claims have continued to show a labor market that remains strong despite having cooled.

•   Earnings: Airbnb (ABNB), Ameren (AEE), American Electric Power (AEP), Applied Materials (AMAT), CBRE Group (CBRE), Deere & Company (DE), Digital Realty Trust (DLR), DTE Energy (DTE), Duke Energy (DUK), DaVita (DVA), DexCom (DXCM), Federal Realty Investment Trust (FRT), GoDaddy (GDDY), GE HealthCare Technologies Inc (GEHC), Global Payments (GPN), Howmet Aerospace (HWM), Ingersoll Rand (IR), Iron Mountain (IRM), Moody’s (MCO), Motorola Solutions (MSI), Palo Alto Networks (PANW), PG&E (PCG), PPL (PPL), Republic Services (RSG), Molson Coors Brewing (TAP), West Pharmaceutical Services (WST), Wynn Resorts (WYNN), Zebra Technologies (ZBRA), Zoetis (ZTS)

Friday

•   January Retail Sales: This measures spending at retail stores and is a key indicator of consumer demand.

•   January Import/Export Price Indexes: These indexes track the changes in the prices of nonmilitary goods and services traded between the U.S. and the rest of the world.

•   January Industrial Production and Capacity Utilization: The industrial sector accounts for much of the cyclical swings in economic activity.

•   Earnings: Crown Castle International (CCI), Moderna (MRNA)

Image: Bernie Pesko/SoFi Source iStock

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