How the Federal Reserve moves forward with interest rate policy will be on investors’ minds next week when the latest inflation numbers are reported. This price data comes at a difficult time as markets try to maneuver around rising bond yields. Stocks rallied on Friday after parts of the March jobs report reassured investors that the central bank remains on track to cut interest rates this year. The number of jobs added to the US economy in March blew past expectations, underscoring the strength of the labor market. But average hourly earnings matched forecasts, suggesting the labor market and the broader economy aren’t really overheating. Currently, the CME FedWatch Tool shows that markets are pricing in three rate cuts this year, starting in June. But Wall Street will get a bigger picture next week of what Fed governors are considering when the March consumer and producer price indexes are released. Investors have largely shrugged off recent reports suggesting inflation is stickier than expected, saying much of the rise in January, for example, was attributable to seasonal factors. The March numbers could confirm for investors whether inflation is indeed heading toward the Fed’s 2% target, or whether they need to rethink their key assumptions about interest rates. A strong inflation reading next week could throw a wrench into this year’s extraordinary equity rally, especially as concerns intensify that the market is overbought. IEF YTD Mountain Price of iShares 7-10 Year Treasury Bond ETF this year. “A lot of the momentum and range from the fourth and first quarter are pretty bullish, but we’re also pretty stretched here in the near term,” said Ross Mayfield, investment strategist at Baird. “Sentiment is bullish, positioning is quite bullish. The market continues to shy away from rate cuts. And so, I think in the absence of an upside catalyst, a higher yield push could be a problem for the equity market in the near term.” “I would expect a little more volatility, certainly than we saw in Q1, and possibly a little bit of a correction here,” Mayfield added. On Friday, the stock benchmarks recorded a losing week amid a surge in oil prices and a rise in bond yields. The Dow Jones Industrial Average closed 2.3% lower for the week, while the S&P 500 and Nasdaq Composite fell about 1% and 0.8%, respectively. West Texas Intermediate crude oil futures topped $87 a barrel this week, hitting a five-month high. The yield on the 10-year note hit 4.4% on Friday, up from 4.2% the previous week. Meanwhile, surveys of investor sentiment appeared strained. .SPX mountain 2023-10-31 The S & P 500 since late October. Short-term pressure Forecasts for next week’s data suggest Wall Street expects continued progress in the fight against inflation. Economists polled by FactSet expected March’s consumer price index to show a 0.3% month-on-month rise in prices, less than February’s 0.4% rise. Accordingly, the March producer price index is expected to rise 0.5%, according to FactSet consensus estimates. That’s down from a 0.6% gain in the previous month. But some investors remain concerned that inflation could pick up in the months ahead of the June Fed meeting, which could change market expectations for interest rates. Hedge fund manager David Einhorn told CNBC’s Scott Wapner this week that he expects inflation to pick up again, noting that he has made gold, a safe haven, a large position in his portfolio. On Friday, Fed Chair Michelle Bauman said another rate hike, not a cut, may be needed if inflation holds steady. Others worry that recent signals point to a stock market in a short-term correction. Bespoke Investment Group found that sentiment is at historic highs, with the bear-spread measured by Investors Intelligence and the American Association of Individual Investors at the 96th percentile, measured using data dating back to 1997. Historically, high values mean low future returns , Found on order. On average, stocks typically fall slightly after a bullish reading, it said. Over the next three months, an average gain of 1 percentage point. Over the next year, they make an average progress of almost three percentage points. Constructive bullish Regardless, many investors remain optimistic that stocks can continue to climb, citing a recent extension in the rally and a resilient economy as positive signals for markets. US Bank’s Tom Hainlin has a year-end target of 5,520 on the S&P 500, favoring US stocks over non-US and large-caps over small-caps. He expects more stocks participating in the rally to benefit sectors such as materials and energy. “We’d say we’re still bullish on further declines in share prices,” Hainlin said. “And that’s based on earnings estimates for the year.” Jamie Myers, securities analyst at Laffer Tengler, is also bullish on the stock. He scouts opportunities in dividend growth stocks, saying investors should pick companies that have recently raised dividends, such as Walmart. The move signals management’s confidence in future earnings. Next week will also bring the start of the first quarter earnings season. Next Friday, results from the nation’s biggest banks, from Citigroup to JPMorgan Chase to Wells Fargo, are on deck. Minutes from the most recent Federal Open Market Committee meeting are also due next Wednesday. Week Ahead Calendar All times ET. Monday April 8 Tuesday April 9 6 am NFIB Small Business Index (March) Wednesday, April 10 8:30 a.m. Consumer Price Index (CPI) (March) 8:30 am Final Hourly Earnings (March) 8:30 AM ) 10 am. wholesale stocks final (February) 2 p.m. NSA Public Budget (March) 2 p.m. FOMC Minutes Earnings: Delta Air Lines Thursday, April 11 8:30 AM Continuing Jobless Claims (3/30) 8:30 AM (Original Claim 06) 8:30 A.M. PPI Earnings PPI: CarMax Friday April 12 8:30 AM Export Price Index (March) 8:30 AM Import Price Index (March) 10am Michigan Sentiment Preliminary (April) Gains: State Street , Wells Fargo, JPMorgan Chase, Progressive, Citigroup