The Stock Market Stalls at the Start of a Week Packed With Data

The economic landscape is once again in the spotlight as the Federal Reserve's preferred inflation gauge, the core personal consumption expenditures price index, is anticipated to reveal the most significant increase in a year on Thursday. This data is expected to underscore the challenges the central bank faces in achieving its 2% inflation target, affirming recent statements from Federal Reserve officials indicating a reluctance to hastily adjust policy.

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Chris Larkin of E*Trade from Morgan Stanley notes, “Economic data will return to center stage,” following higher-than-anticipated Consumer Price Index (CPI) and Producer Price Index (PPI) readings earlier in the month. Investors are keenly observing the Personal Consumption Expenditures (PCE) for insights into potential reflation threats and their impact on the timing of the Fed's rate cuts.

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Market participants are also closely monitoring how the bond market will absorb substantial Treasury and corporate issuances amid month-end positioning. The US investment-grade bond market is poised for robust issuance, with syndicates projecting approximately $35 billion in fresh bond sales this week. This surge in issuance could approach the February record of $150 billion, set last year, as companies capitalize on strong investor demand.

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The S&P 500, hovering around 5,100, is witnessing noteworthy developments, including Amazon.com Inc.'s effective inclusion in the Dow Jones Industrial Average and Berkshire Hathaway Inc. achieving another all-time high, inching closer to a market value of $1 trillion. Meanwhile, Treasury 10-year yields have risen by four basis points to 4.28%.

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Goldman Sachs Group Inc. strategists suggest that stock markets have the potential to extend gains beyond record highs if the economic outlook remains optimistic and investors redirect funds into recently lagging sectors. Despite concentrated investor positioning in the so-called "Magnificent Seven," strategists see room for further bullish sentiment and positioning, especially with a potential rotation from cash into risky assets and laggards within equities.

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Amid discussions about the market's trajectory, concerns about a potential rate hike are dismissed by Arthur Laffer Jr., president of Laffer Tengler Investments. Laffer Jr. asserts that a rate hike is unlikely unless inflation consistently rises for an extended period. He predicts the worst-case scenario as the Fed postponing rate cuts until the end of the second quarter or the beginning of the third.

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HSBC strategists have shifted their view on global stocks from underweight to neutral, acknowledging their earlier misjudgment in January, failing to anticipate the rally in artificial intelligence stocks. They advise investors to focus on sectors and companies experiencing growth, particularly in technology, healthcare, and select discretionary names.

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UBS Global Wealth Management's Solita Marcelli recommends diversifying portfolios beyond US large-caps, identifying high-quality growth stocks in Europe and favoring India within emerging markets. Marcelli also sees value in US small-caps and small- to mid-caps in Europe.

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While several forecasters have raised equity benchmarks' targets due to an optimistic outlook for corporate earnings, JPMorgan Chase & Co. strategists caution that profit margins may be peaking, given historical standards. Report cards from Salesforce Inc., Zoom Video Communications Inc., Dell Technologies Inc., and HP Inc. this week are expected to shed light on corporate demand for software and hardware and cost-cutting measures to safeguard margins.

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