A robust jobs report couldn't save stocks from weekly losses as a spike in oil prices amid tensions in the Middle East and worries over the Federal Reserve's rate cut path put a damper on the market's hot start to the year.
For the week, the Dow Jones Industrial Average (^DJI) led the losses, falling nearly 2.3%, or more than 900 points. This marked the Dow's worst weekly performance in more than a year. Meanwhile, the S&P 500 (^GSPC) fell nearly 1% and the tech-heavy Nasdaq Composite (^IXIC) slipped 0.8%.
In the week ahead, a fresh reading on inflation and the start of first quarter earnings season will greet investors.
On the corporate front, JPMorgan (JPM), Wells Fargo (WFC), BlackRock (BLK), and Citi (C) are set to report earnings along with Delta Air Lines (DAL).
Elsewhere in economic news, minutes from the Federal Reserve's March meeting and an update on consumer sentiment are on the schedule.
The rate debate
While the Fed maintained its forecast for lowering interest rates three times this year at its last meeting, there's growing discussion about whether the central bank will make fewer cuts — or even hold off on them altogether.
On Thursday, Minneapolis Fed president Neel Kashkari suggested the Fed may not cut interest rates at all this year if inflation progress stalls. And after the March jobs report showed the labor market remains remarkably resilient, Apollo Global Management chief economist Torsten Sløk said the report is in line with his previous call for no cuts this year. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
"We are sticking to our view that the Fed will not cut interest rates this year," Sløk wrote in a note to clients.
Others believe Friday's data showed some positive developments on the supply side of the labor market, helping bolster the case that a strong labor market and wage growth won't necessarily fuel inflation.
"We see the report as supporting Chair Powell's view that the Fed can start a cautious and gradual easing cycle later this year — as long as the incoming data on inflation show improvement," Bank of America US economist Michael Gapen wrote in a research note on Friday.
Price check
The week ahead will provide another update on the inflation story with the release of the March Consumer Price Index on Wednesday. After some have noted seasonal effects could have caused sticky inflation readings to start the year, economists will be closely watching to see if inflation returned to its downward trend in March.
Wall Street expects an annual gain of 3.5% for headline CPI, which includes the price of food and energy, a noted increase from the 3.2% headline number in February. Prices are set to rise 0.4% on a month-over-month basis, in line with February's rise.
On a "core" basis, which strips out the food and energy prices, inflation is expected to have risen 3.7% year over year, a slowdown from the 3.8% increase seen in February. Monthly core price increases are expected to clock in at 0.3%, slower than the 0.4% increases seen in January and February.
"The March CPI report will be a key indication of whether the pickup in inflation at the start of 2024 was a function of early-year noise or if inflation's journey back to the Fed's target has been drawn out materially," Wells Fargo senior economist Sarah House wrote in a note to clients. "We believe it will show hints of both dynamics at play."
A new earnings season kicks off
Delta is set to report earnings on Wednesday before the bell, an appetizer for investors before a slew of the nation's largest financial institutions, including JPMorgan, officially usher in the first quarter reporting season on Friday.
Broadly, Wall Street expects the first quarter to set the tone for a robust year of earnings growth among S&P 500 companies. Consensus expects first quarter growth for S&P 500 companies of 3.2% compared to the year prior. For the full year, Wall Street sees S&P 500 earnings growing 10.9%.
From a broad perspective, two key themes to watch will be which sectors are seeing earnings growth and, as always, how company executives think the current economic environment will impact the rest of their year.
Within the sector action, Wall Street strategists will be closely following whether earnings pick up in areas outside of technology, as they've recently helped lead a broadening of the stock market rally.
Part of that rally has been backed by an expectation that earnings will begin to grow among the 493 S&P companies that weren't a part of the Magnificent Seven-led rally in 2023. Deutsche Bank chief equity strategist Binky Chadha believes signs of that earnings rotation will begin this quarter with megacap growth and tech seeing slower year-over-year earnings growth than the prior quarter.
"We can always talk about price action and whether, you know, the rally is widening but at the end it's about earnings and fundamentals," Chadha told Yahoo Finance. "We think outside megacap tech, you'll see a pickup in earnings growth, whereas for megacap tech you'll see the beginning of a slowdown basically in earnings growth."
While Chadha isn't predicting a moment where the floor falls out during tech earnings this quarter, slower sequential growth in that sector met with a pickup in earnings in other sectors should "encourage" further rotation in the market, he said.
Weekly calendar
Monday Economic data: New York Fed one-year inflation expectations, March (3.04% previously)
Earnings: No notable earnings.
Tuesday Economic data: NFIB Small Business Optimism, March (90.0 expected, 89.4 previously)
Earnings: WD-40 (WDFC), Tilray (TLRY)
Wednesday
Economic data: Consumer Price Index, month-over-month, March (+0.4% expected, +0.4% previously); Core CPI, month-over-month, March (+0.3% expected, +0.4% previously); CPI, year-over-year, March (+3.5% expected, +3.2% previously); Core CPI, year-over-year, March (+3.7% expected, +3.8% previously); Real average hourly earnings, year-over-year, March (+1.1% previously) MBA M
Mortgage Applications, week ending April 5 (-0.6%); FOMC meeting minutes
Earnings: Delta Air Lines (DAL), Rent the Runway (RENT)
Thursday Economic data: Initial jobless claims, week ending April 6 (221,000 previously); Producer Price Index, month-over-month, March (+0.3% expected, +0.6% previously); PPI, year-over-year, March (+1.6% previously)
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