Inflation, Walmart, Target highlight a consumer-focused week: What to watch

The stock market continued its rebound last week with a Friday rally that sent the major US indexes to their highest closing levels in nearly two months.

In the week ahead, investors will face a schedule full of updates on the health of the US consumer as the holiday shopping season kicks into high gear.

The October Consumer Price Index (CPI) report out Tuesday will bring investors a key inflation reading after several Federal Reserve officials last week tried to keep the door open for future rate hikes.

Big box retailers including Home Depot (HD), Target (TGT), and Walmart (WMT) will highlight a slate of corporate earnings heavily focused on the consumer, with Macy's (M), TJX Companies (TJX), and BJ's Wholesale (BJ) also set to release results. The October read on retail sales out Wednesday morning will also offer a key read on the state of the consumer.

Questions over the health of China's economy will make results from Alibaba (BABA) and JD.com (JD) closely watched.

News late Friday that Moody's had changed its outlook on the US government's debt to "negative" from "stable" will also draw investor attention, as elevated interest rates raise the cost of servicing the government's growing debt pile.

Stocks gained ground across the board last week, with only Thursday's hiccup breaking an eight-day winning streak for the S&P 500.

Year to date, all three major indexes are higher with the Nasdaq's (^IXIC) yearly gains now back above 30% while the S&P 500 (^GSPC) is up 15%; the Dow Jones Industrial Average (^DJI) is up 3.4% this year.

Last week, Federal Reserve Chair Jerome Powell cast some doubt on expectations the central bank will be content to hold interest rates steady in the coming months, saying at an IMF event on Thursday, "If it becomes appropriate to tighten policy further, we will not hesitate to do so."

Bets on the Fed's rate hike path shifted slightly off these comments.

As of Friday afternoon, markets were pricing in a roughly 22% chance the central bank hikes interest rates by the end of its January meeting, an increase from the 9% chance markets saw just a week prior, per the CME FedWatch Tool.

Still, Powell reiterated the Fed will "move carefully" in the future, with this approach "allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening."

Tuesday's CPI data will offer a key update on the central bank's fight with inflation.

Economists forecast headline CPI inflation rose 3.3% over the prior year in October, a decrease from the 3.7% rise seen in September. Prices are set to rise 0.1% over the prior month, down from a 0.3% gain in September. A decrease in energy prices is expected to drive much of the slowdown.

On a "core" basis, which strips out the volatile food and energy categories, CPI is forecast to rise 4.1% over last year in October, unchanged from September. Monthly core price increases are expected to clock in at 0.3%, also in line with the month prior.

"Moderating wage and job growth, along with slower demand for goods and services, easing rent inflation and reduced pricing power should lead to further disinflation and argue in favor of the Fed holding the fed funds rate constant in the coming months," EY chief economist Greg Daco wrote in a note previewing the release.

The coming week will also provide a closer look at consumer spending, a key trend in the 2023 economic story that's been headlined by a more resilient-than-expected consumer.

Wall Street economists see the October retail sales report suggesting some cracks are forming in the consumer's appetite to spend. Data from Bloomberg shows economists project retail sales fell 0.3% in October compared to the month prior, which would mark the first negative print since March.

In a research note on Thursday, Bank of America said aggregated data from its credit and debit cards showed a 0.5% decrease in spending during October compared to the year prior. Though, like the inflation print, much of that may have come from the decrease in energy prices, the firm noted.

Walmart and Target will highlight the week of corporate reports, as investors will look for updates on the state of the consumer, retail crime, holiday shopping season, and how the resumption of student loan payments may be impacting spending.

The two stocks have been on divergent paths this year.

Walmart stock has gained about 16% in 2023, outperforming the S&P 500 and benefitting from some consumers trading down as inflation puts pressure on household budgets, particularly in the grocery aisle.

Target, in contrast, has seen shares fall nearly 35%, with its higher dependance on discretionary spending — in July, Goldman Sachs estimated Target's sales are 60% discretionary goods — challenging the retailer in an environment where consumers say they feel worse about the economy than most data suggests.

The performance of these stocks so far this year also serves as a reminder that they are, technically, in different sectors, with Walmart classified as a Consumer Staples (XLP) stock and Target categorized as a Consumer Discretionary (XLY) name.

"In consumer discretionary there's such a wide bucket of retailer stocks, and there are some that are really thriving this year, and are reporting really decent earnings and getting rewarded for it," eToro US investment analyst Callie Cox told Yahoo Finance. "And then there are others that have really struggled, you know, durables, bigger appliances, appliance manufacturers, auto parts, manufacturers, and auto manufacturers."

Cox noted that the dispersion among stocks is what's led to abnormal stock reactions this earnings season, with companies missing on earnings seeing their stocks fall more than usual while positive results aren't being rewarded as much.

"That's why it's important as an investor to really understand what kind of risk you're taking on because companies are getting hit hard by these higher interest rates, especially smaller, speculative companies," Cox said. "You see that flow through in events like earnings and management calls, the effects become more apparent."

Weekly calendar

Monday

Economic data: No notable economic news.

Earnings: Monday.com (MNDY), Fisker (FSR), Tyson (TSN)

Tuesday

Economic data: Consumer Price Index, month-over-month, October (+0.1% expected, +0.4% previously); Core CPI, month-over-month, October (+0.3% expected, +0.3% previously); CPI, year-over-year, October (+3.3% expected, +3.7% previously); Core CPI, year-over-year, October (+4.1% expected, +4.1% previously); Real average hourly earnings, year-over-year, October (+0.5% previously); NFIB Small Business Optimism, October (90.8 previously)

Earnings: Aramark (ARMK), Canoo (GOEV) Home Depot (HD), On Holding AG (ONON)

Wednesday

Economic data: Retail sales, October month-over-month, (-0.3% expected, +0.7% previously); Retail sales, ex auto and gas, October (+0.2% expected, +0.6% previously); Producer Price Index, month-over-month, October (+0.1% expected, +0.5% previously); PPI, year-over-year, October (+1.5% expected; +0.8% previously); Core PPI, month-over-month, October (+0.3% expected, +0.3% previously); Core PPI, year-over-year, October (+2.7% previously); Empire State manufacturing, November (-2.1 expected, -4.6 previously); MBA mortgage applications, week ending Nov. 10 (+2.5% previously)

Earnings: Advance Auto Parts (AAP), Cisco Systems (CSCO), Fiserv (FI), JD.com (JD), Palo Alto Networks (PANW), Target (TGT), TJX Companies (TJX), XPeng (XPEV)

Thursday

Economic data: Initial jobless claims, week ending Nov. 11 (217,000 previously); Import prices, month-over-month, October (-0.3% expected, +0.1% previously); Export prices, month-over-month, October (+0.7% previously); Industrial production, month-over-month, October (-0.4% expected, +0.3% previously); Philadelphia Fed business outlook, November (-11 expected, -9 previously); NAHB housing market index (40 expected, 40 previously)

Earnings: Alibaba (BABA), Applied Materials (AMAT), Dolby (DLB), Gap (GPS), Macy's (M), Ross Stores (ROST), Walmart (WMT), Warner Music Group (WMG)

Friday

Economic data: Building permits, October (1.45 million annualized rate expected, 1.47 million previously); Housing starts, October (1.35 million annualized rate expected, 1.36 previously)

Earnings: BJ's Wholesale (BJ)

Josh Schafer is a reporter for Yahoo Finance.

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