Next week, an important inflation report could make the already shaky U.S. stock market even more jumpy. Investors are worried that the economy might slow down, and President Trump’s tariffs are adding to these concerns. Although the S&P 500 had a small gain on Friday, it still faced its worst week in six months. The Nasdaq, which focuses on tech companies, has dropped more than 10% since it reached its highest point last December.
Investors are trying to understand recent changes in government policy around the world. Trump’s unpredictable tariffs on Mexico, Canada, and China are causing worries about the economy. Markets were also unsettled by Germany’s unexpected plans to spend more money, which made German bonds less valuable.
The latest U.S. economic data hasn’t been great, but some good news for stocks is that many believe the Federal Reserve might cut interest rates to help the economy if it weakens. However, if Wednesday’s consumer price index report shows that inflation is higher than expected, it could change that thinking. A high inflation number might scare investors, as explained by Bryant VanCronkhite, a portfolio manager. He said that until inflation comes down, the Fed won’t be able to help the economy as much.
Last month’s inflation data showed a big increase of 0.5% in January—the highest since August—so all eyes are on February’s numbers, which are expected to rise by 0.3%. This report will come just before the Fed meets on March 18-19. While the Fed is likely to keep interest rates the same for now, many expect cuts later in the year.
If inflation is too high, it could hurt market optimism about those rate cuts, according to John Velis, a macro strategist. Investors are also concerned about “stagflation,” which means slow economic growth with rising prices—a tough situation for investments. If inflation is high, it could make investors nervous about this scenario.
On the jobs side, recent data showed that job growth in February was strong, but there are signs that the labor market is weakening due to uncertain trade policies and federal spending cuts.
In Washington, lawmakers are busy negotiating a spending bill to avoid a government shutdown. Trade policies are still a big worry, as tariffs can lower company profits and raise consumer prices. However, investors are unsure how long these tariffs will last or if they are just part of negotiations. Trump stated that Mexico and Canada won’t need to pay those tariffs until April 2. With new policies being launched, uncertainty remains for both businesses and consumers.
Finally, market anxiety is rising, reflected by a jump in the Cboe Volatility Index, which is nearly at its highest level since last year. Irene Tunkel, a chief equity strategist, stated that volatility will continue because we lack clear economic and trade policies.
Wall St Week Ahead runs every Friday. Stay tuned for the daily stock market report.
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