With investor confidence in the Federal Reserve’s interest rate path fast dwindling, the inflation data next week will be of paramount importance for a flagging market. The earnings season is also starting to ramp up once more. Stocks posted a second straight losing week, after this week’s strong economic data added to fears that the Fed will cut even less than it projected last month, when policymakers penciled in just two quarter-point cuts for 2025. Friday’s blowout jobs number exacerbated the sell-off, with the Dow Jones Industrial Average falling nearly 700 points. The bond market is in turmoil as well, with the 10-year Treasury yield on Friday spiking to its highest level since late 2023 . It was last above 4.76%. US10Y YTD mountain US10Y Next week, the consumer and producer prices data will be scrutinized by investors worried they will only confirm pricing pressures are here to stay, especially when considering President-elect Donald Trump’s inflationary trade and immigration policies could outweigh any benefits from growth. “We might have to come to terms with the fact that, anyway, inflation isn’t as low as the Fed would like. This might just be where inflation is,” Allison Schrager, senior fellow at the Manhattan Institute, told CNBC’s ” Squawk Box ” on Friday. “I think they were trying to tell the story, ‘we beat inflation, we’re credible,’ and now it looks like that last half mile isn’t going anywhere,” she added. That could cement the likelihood of fewer interest rate cuts, or even reintroduce the possibility of a hike. According to the CME FedWatch Tool, markets were last pricing in a roughly 40% chance the Fed will lower rates just once this year, to the range of 4.00% and 4.25%. For the most part, no cut is priced into the upcoming Fed meeting, which will be held from Jan. 28-29. The market ‘hinges’ on inflation The December consumer price index is expected to rise 0.3% on the month and 2.8% on the year, according to consensus estimates from FactSet. That’s compared to respective increases of 0.3% and 2.7% in the previous report. Excluding volatile food and energy prices, core inflation is expected to have risen just 0.2% on the month, down from 0.3% previously. It’s expected to have risen 3.3% from 12 months earlier, the same as in the prior report. How investors take the December inflation data could have big implications for a market that’s already at historically stretched valuations to start the year. The S & P 500 , at nearly 22 times forward earnings, is trading near its highest multiple since 2021. That means investors will have to rely on earnings growth to power the market this year, an endeavor that gets more challenging when rising inflation, higher yields and a stronger dollar make it harder for companies to deliver on expectations. “Valuations don’t give you a lot of room to maneuver,” Dan Niles, founder of Niles Investment Management, told CNBC’s “Squawk Box” this week. “That’s why this year, it’s like one of the widest range of outcomes I can think of — and I think it really hinges on the path of inflation in terms of whether that multiple can hold or it contracts by 20% to 30%.” Niles named cash as a top pick this year for the first time since the 2022 market drop, saying that cash could be a good place to hide out. A hotter inflation report could also weigh on the bond market. John Belton, a portfolio manager at Gabelli Funds, said he’s eyeing the 10-year U.S. Treasury, as it currently sits “not too far” from the psychologically important 5% level. “I think that would be a clear source of pressure for stock valuations,” Belton said. .SPX 5D mountain S & P 500, over five days On the economic front, investors will also pay close attention to retail sales data, to see whether the consumer continues to spend. Earnings are also set to ramp up once more, with the big banks kicking off the season on Wednesday. Citigroup , Goldman Sachs , Wells Fargo , JPMorgan Chase , BlackRock , Bank of America , Morgan Stanley and more are set to report in the week ahead. Week ahead calendar All times ET. Monday, Jan. 13 2 p.m. Treasury Budget (December) Tuesday, Jan. 14 6 a.m. NFIB Small Business Index (December) 8:30 a.m. Producer Price Index (December) Wednesday, Jan. 15 8:30 a.m. Consumer Price Index (December) 8:30 a.m. Empire State Index (January) 11 a.m. New York Federal Reserve Bank President and CEO John Williams speaks at CBIA Economic Summit and Outlook 2025 Earnings: Citigroup , Goldman Sachs , Wells Fargo , JPMorgan Chase , BlackRock , Bank of New York Mellon Thursday, Jan. 16 8:30 a.m. Continuing Jobless Claims (1/4) 8:30 a.m. Export Price Index (December) 8:30 a.m. Import Price Index (December) 8:30 a.m. Initial Claims (1/11) 8:30 a.m. Philadelphia Fed Index (January) 8:30 a.m. Retail Sales (December) 10 a.m. Business Inventories (November) 10 a.m. NAHB Housing Market Index (January) Earnings: J.B. Hunt Transport Services , Morgan Stanley , U.S. Bancorp , Bank of America , PNC Financial Services Group , M & T Bank , UnitedHealth Group Friday, Jan. 17 8:30 a.m. Building Permits preliminary (December) 8:30 a.m. Housing Starts (December) 9:15 a.m. Capacity Utilization (December) 9:15 a.m. Industrial Production (December) 9:15 a.m. Manufacturing Production (December) Earnings: State Street , Schlumberger , Fastenal , Citizens Financial Group , Regions Financial , Truist Financial , Huntington Bancshares
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