More Key Economic Data On The Horizon And Other Themes To Watch For Next Week

It was a wild week for stocks this week, early in the week it looked like the market was heading for new lows until the US CPI number changed that. The S&P 500 ($SPX) (SPY) rallied more than 100 points on Thursday, bringing in the largest single-day increase since the covid recovery in 2020. This was continued on Friday with bulls maintaining complete control with another close of 1% higher.

The Dow Jones Industrials Index ($DOWI) (DIA) was up +4.15% for the week while the Nasdaq 100 Index ($IUXX) (QQQ) was +8.84% higher.

The US elections had almost no real measurable effect on the market to speak over and with CPI coming in a little better than anticipated all eyes will be on a few key news releases this week: The PPI, Philly Fed Manufacturing Index, and the Empire State manufacturing index among some other things.

Here are all 5 themes to watch in the market this week:

Month over Month PPI on Tuesday

With inflation coming in better than expected all eyes will be on PPI to see if those changes are also reflected in the cost of the finished goods. After watching the effect the CPI print had, the PPI has the potential to be a real market mover as well. It will give an indication that the FED has actually started to tame the inflation beast in the US. 

Empire State/Philly Fed Manufacturing Index on Tuesday

Tying in with the PPI is the Empire State index on Tuesday. This is a leading indicator for overall economic health based on the manufacturers in New York State. 

On Thursday the Philly Fed Index comes out and has the same use as the NY State index. 

A positive reading on the Manufacturing indexes along with PPI could inject some additional positive momentum into the market. Positive readings will signal improving economic conditions and signal to the Fed that their policy is working.

Existing Home Sales

Sticking with the news theme is the Existing Home Sales number coming out on Friday. This is also a leading indicator, and it represents the annualized number of homes sold in the previous month. 

With interest rates still on the rise, this has the potential to be a market mover as well. An increase in homes sold would mean that the population is coping well with the increased cost of borrowing. This also signals to policymakers that their current path is working and the economic health of the country is on the mend.

Commodity Prices

The price of gold will also be something to watch this week. The price of spot gold rallied 7.5% last week even as the broader market rallied about the same amount. Gold price is something to watch because it has long been a store of value and a hedge against inflation and interest rate increases. If the price of gold continues to climb with the market it could be a sign of hedging in the futures markets or a general distrust of the stock rally. If the price of gold reverses this week, it's potentially a sign that this rally will have some legs and that a risk-on mentality will be coming back to the market. 

Oil prices are also something to keep an eye on in the coming week. Oil has been slowly increasing in price since its low in late September and this has the potential to put a damper on other positive economic news. If the price of oil continues to rise into next week it will bring the cost of transportation up as well as the cost of heating as the majority of the US is going into the colder parts of the year. While it is unlikely this is a catalyst for a direct move in the equities markets, it still has the potential to dampen gains and drag on other areas of the economy. 

Return Sector Rotation

Last week it was brought up that there was a rotation out of tech into more conservative asset classes like energy and commodities. This week the opposite seemed to be true. Once it was risk-on after the CPI print, Tech and other high beta names exploded with both money inflows and prices. Calls were being bought as fast as they could be and there was a major repositioning occurring. It is plausible that it continues this week if all of the news above continues to be positive. The rotation back into tech could be a fantastic trade this week.

Best of luck this week and don’t forget to check out my daily options article.

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