Wall Street Futures Pause As April Inflation Worries Eclipse Meme Stock Mania 2.0: Why This Analyst Bets May Will Be ‘Strong Month’

U.S. stock futures were flat Wednesday morning as investors awaited a crucial report on consumer prices. The Consumer Price Index (CPI) for April is expected to significantly impact market direction due to its influence on Federal Reserve interest rates. Currently, the futures market predicts a high likelihood (over 66%) of rate cuts by September, following anticipated pauses in June and July. If other economic data indicating growth also shows weakness, investors could view this as a double positive for stocks. However, the ongoing “meme stock” phenomenon remains a factor, potentially continuing to boost the small-cap sector.

Cues From Previous Session

Stocks defied the hotter-than-expected producer price inflation numbers and advanced on Tuesday, with the upside attributable to a decline in bond yields for a third straight session. Notwithstanding the data and Fed Chair Jerome Powell’s hawkish comments, traders began to discount a rate cut after the July Federal Open Market Committee meeting.

After seeing lackluster sentiment in the morning, the major averages took off by the mid-session before closing firmly in the green, with IT and real estate stocks leading the rally. The Nasdaq Composite Index closed at a fresh closing high, although it could not break above its intraday highs, while the S&P 500 and the Dow Industrials ended at their best levels in about a month-and-a-half.

Small-cap stocks outperformed, benefiting from the meme frenzy.

Insights From Analysts:

Fund manager Louis Navellier weighed in on the economic data due for Wednesday. He flagged shelter costs as the key data that would be on the radar of traders. “All eyes will be on owners’ equivalent rent (shelter costs) and it will be interesting if there is any relief in higher shelter costs,” he said. The fund manager also said traders will hope for a weak retail sales report that could push bond yield further lower and encourage the Fed to cut interest rates sooner rather than later.

Fund Strat Head of Research Tom Lee is bullish regarding the market trajectory for the rest of the month. He listed the following as a positive setup:

• stocks trading near all-time highs
• bond yields and CBOE Volatility index falling
• $6 trillion in cash waiting on the sidelines
• cautious investors.

“I think it’s time to get bullish. That’s our bet that May ends up being a very strong month for stocks, even better than it’s been already,” Lee said in a CNBC interview.

Upcoming Economic Data:

• The Bureau of Labor Statistics will release the CPI report for April at 8:30 a.m. EDT. The report is expected to show a 0.4% month-over-month increase in the headline number, compared with March’s 0.3% rise. On an annual basis, however, the consumer price index may have risen 3.4%, lower than the 3.5% gain in the previous month. The monthly and annual rates of core consumer prices are expected at 0.3% and 3.6%, respectively, versus March’s 0.4% and 3.8%.
• The Commerce Department is due to release its retail sales report for April at 8:30 a.m. EDT. The month-over-month retail sales growth is expected to slow from 0.7% in March to 0.4% in April. Excluding autos, retail sales may climb 0.2%, slower than the 0.9% growth in March.
• The New York Fed will release the results of its Empire manufacturing survey for May at 8:30 a.m. EDT. The business conditions index may have seen an improvement from -14.3 in April to -10 in May. A negative reading suggests continued contraction.
• The Commerce Department is scheduled to release its business inventories report at 10 a.m. EDT, with economists, on average, expecting a 0.1% month-over-month drop in inventories in March compared to a 0.4% increase in February.
• The National Association of Home Builders housing market survey for May is expected to show confidence among builders remained static. The housing market index is expected to have edged down a point to 51.
• Richmond Fed President Tom Barkin is scheduled to do a TV interview at 10 a.m. EDT.
• The Energy Information Administration will release its customary weekly Petroleum Status report at 10:30 a.m. EDT.
• Minneapolis Fed President Neel Kashkari will speak at noon EDT.
• Fed Governor Michelle Bowman will speak at 3:20 p.m. EDT.

See Also: Best Futures Brokers

Stocks In Focus:

• Lions Gate Entertainment Corp. (NYSE:LGF) fell about 1.9% in premarket trading following the company’s earnings announcement and Boot Barn Holdings, Inc. (NYSE:BOOT) moved down over 5.50%.
• Dynatrace, Inc. (NYSE:DT), monday.com Ltd. (NASDAQ:MNDY), Cisco Systems, Inc. (NASDAQ:CSCO) and ZTO Express Inc. (NYSE:ZTO) are among the companies due to release their quarterly results.
• Meme stocks may have an up session yet again, with GameStop Corp. (NYSE:GME) and AMC Entertainment Holdings, Inc. (NYSE:AMC) climbing about 10% each.

Commodities, Bonds, and Global Equity Markets:

Crude oil futures rebounded from Tuesday’s slide and rose modestly, while the gold rally is picking up pace, with the yellow metal trading at $2,375.25 an ounce. The 10-year bond yield retreated for a fourth straight session, as it fell 2.5 basis points to 4.42%. Bitcoin (CRYPTO: BTC) saw modest strength, although still trading under $63K.

Most Asian markets pulled back ahead of the U.S. CPI data, with Hong Kong and South Korea closed for market holidays. European stocks saw lackluster sentiment in early trading.

Read Next: Fed Chair Powell Signals Patience In Rate Policy, Labels Producer Inflation Data As ‘Mixed’

This illustration was generated using artificial intelligence via MidJourney.