U.S. stocks edge higher ahead of this week’s inflation data, Fed decision

What’s driving markets

Stock looked to extend their recent rally Monday — though the positivity was tinged with caution ahead of a week stuffed with potential tripwires.

The S&P 500 finished Friday at its highest close in 10 months, having enjoyed a four-week winning streak as investors became more hopeful that the U.S. economy can avoid a sharp economic slowdown as easing inflation allows the Federal Reserve to pause monetary-tightening cycle. Earlier in the week, the large-cap benchmark met the criteria for exiting a bear market, as it finished more than 20% above its October closing low.

That bullish narrative will be put to the test in the coming days.

The consumer-price index for May will be published on Tuesday. Investors will be hoping to see annual CPI inflation — which hit a 40-year high of 9.1% last June and dropped to 4.9% in this April — fall further, with economists forecasting a dip to 4%.

Such a decline would likely cement the market’s expectations that the Fed will leave interest rates unchanged at a range of 5% to 5.25% after the conclusion of its meeting on Wednesday.

However, analysts noted that recent moves by other central banks mean traders should take nothing for granted.

“After a week highlighted by surprise rate hikes from the [Reserve Bank of Australia] and [Bank of Canada], investors could be hawkishly absorbed ahead of a bonanza of central bank meetings this week,” said Stephen Innes, managing partner at SPI Asset Management.

See: How a hawkish Fed could kill a baby bull-market rally in U.S. stocks

And there are also announcements to navigate from the European Central Bank on Thursday and the Bank of Japan on Friday. The former is expected to raise rates by another 25 basis points and the latter is forecast to stand pat.

Also read: Fed will keep raising rates, even if it skips a June hike

Still, for now, traders seem pretty relaxed. The CBOE VIX
VIX,
+4.19%
index, an option-based gauge of expected S&P 500 volatility, sits at 14.4, near its lowest since early 2020.

And the CBOE equity put/call ratio has dropped to 0.50, its lowest in a year as traders increase their relative purchases of bullish bets.

“Investors are flocking into call options because no one wants to miss a further rally in stock markets, but no one is sure that the rally will continue given the fact that the Fed has hiked rates at a record speed since last year, leading to the failure of a couple of U.S. regional banks on the way,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

There’s not much in the way of top-tier economic data on the slate Monday, though the federal budget report for May will be published at 2 p.m. Eastern time.

Companies in focus

• Tesla Inc.
  TSLA,
  +1.10%
  shares rose 1.5%, on track for a 12th straight daily gain. That would break the previous record winning streak off 11 gains, which ended Jan. 8, 2021, and was matched on Friday. The electric-vehicle giant’s stock has run up 33.6% over the past 11 days, compared with a 37.4% gain during the January 2021 streak.
• Shares of Nasdaq Inc.
  NDAQ,
  -13.16%
  dropped 9.9% after the securities-trading, -clearing and -listing company announced an agreement to buy software company Adenza for $10.5 billion in cash and stock from Thoma Bravo.