US indices look to data next week for the next push

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It has been a bit more of a tepid one for stocks in the last two days. But even so, the likes of the S&P 500 is up a little over 1% this week. Although, that owes much to the jump higher on Monday. US futures might be pointing lower today but in the bigger picture, the major indices look to be lining up a retest of record highs next week:

The drop last month saw the S&P 500 near a test of its 100-day moving average (red line) before buyers stepped in. It came as geopolitical tensions faded before another push higher last week after softer US data.

We’ve sort of hit the floor with regards to the Fed outlook as traders went from seven rate cuts priced in at the start of the year to then just one at the end of last month. Now, we’re veering back to two rate cuts and that is helping stocks catch a modest bounce.

The question now though, is there more to that change in the Fed outlook? If so, that’s going to be a boon for equities.

Next week, we have the US PPI, CPI, and retail sales data to work with. The latter two in particular will be ones to watch.

If there is further easing in price pressures while the US economy begins to show signs of softening, that will invite traders to price in more potential rate cuts by the Fed.

From the data last week, we might have started to see early signals of employment conditions turning around. And Powell said that a few ticks higher in the unemployment rate could also start to turn some heads at the Fed.

So, if other data points also corroborate with that, stocks might be poised to start running again as the greed resumes.

As much as I would’ve preferred for the correction last month to run deeper, it didn’t end up being the case. And so if the fundamental argument kicks back into gear, it’s tough to go against that.

How do you think stocks are going to react to softer US data moving forward? Or are stagflation risks and a weaker economy going to be a recipe for investors to cool off?