Markets are off to a slow start this week with the S&P 500 virtually unchanged, the Dow Jones Industrial Average lower and the tech-heavy NASDAQ is higher Monday.
The docket for economic data this week includes retail sales and the Producer Price Index (PPI) for the month of May. However, this week is really about the Federal Reserve, which will conclude a two-day meeting on Wednesday afternoon. The central bank is not expected to make any changes to policy, but investors will be paying close attention for hints about when policy may change as the Fed starts to cut back on fiscal stimulus as the economy improves. Traders will also continue to watch social media as new meme stocks have already sprung up this week.
Fed Meeting
The Federal Reserve will meet Wednesday afternoon meaning once again inflation will be the main narrative this week. Much of the recent focus has been on the downward trend of the 10-year Treasury rate as it dropped to 1.44% last week. The rate rose to slightly more than 1.70% back in March as it started climbing from a low below 0.55% in late July of last year. From July to March of this year, the rate experienced a pretty steady rise as stimulus measures and reopening boosted traders opinions about the fortunes of the economy.The 10-year rate dropped despite some fears of inflation, as much of the recent price surges are due to shortages such as the the ones experienced in the automotive industry. However, many remain worried about inflation as a result of massive stimulus measures, both fiscal and monetary. As a result, traders are hoping for a signal on when the Fed will scale back its bond-purchase program and other monetary stimulus measures. The Fed is not expected to change rates any time soon. The CME FedWatch Tool predicts only a 7% chance for a rate hike between now and the December meeting.
Economic Data
A moderate amount of new economic data is set to release this week, highlighted by retail sales numbers for May. Retail sales are expected to have dropped 0.6% last month after remaining flat in April. However, excluding the automotive industry, sales are estimated to rise 0.5% in May after falling 0.8% the previous month.In addition to retail sales, PPI numbers are also scheduled for release Tuesday morning. Core PPI is expected to have risen 0.5% in May after gaining 0.7% in April. The lower increase in PPI is a good sign for current inflation trends but 0.5% is still a significant rise. Again though, traders should keep in mind the impact of global shortages that are short-term. For example, used car prices accounted for more than a third of the rise in core CPI last month.
Lastly, 1.635 million housing starts are expected for May after 1.569 million in April. Initial claims meanwhile are estimated to drop from 376,000 to 350,000 for last week.
Meme Stocks
Reddit stocks had a strong start to last week but faltered at the tail end of the week. AMC Entertainment (AMC) bounced back on Monday though as the stock gained about 15% for the day. GameStop (GME) and Clover Health (CLOV) didn’t have the same success as both dipped slightly to start the week. That drip could be in part due to the emergence of a new meme stock, Corsair Gaming (CRSR). CRSR shares gained nearly 20% Monday as the gaming and streaming firm surged. It remains to be seen whether Corsair can keep up this momentum as the stock has been trending downwards since February. It’s hardly surprising that the newest meme stock would be one focused on gaming and streaming as there is seemingly a strong correlation between gamers, Redditors and the stocks that get the meme-stock treatment.Economic Events this Week
Tuesday - 8:30 a.m. - Retail Sales - 8:30 a.m.- PPIWednesday - 8:30 a.m.- Housing Starts - 2:00 p.m. - FOMC Rate Decision
Thursday - 8:30 a.m. - Initial Claims - 8:30 a.m. - Continuing Claims