Market sentiment appears to be at an inflection point. Forthcoming data could tip the balance toward the bulls…or the bears.

This is a make-or-break week for the equity rally. On Wednesday, we’re scheduled to get the consumer price index (CPI) report, and then on Thursday the producer price index (PPI) report, both for March. Also on Wednesday, we’ll see the minutes of the Federal Open Market Committee’s (FOMC) March meeting.

It’s improbable that the Fed will consider reducing rates before June. In fact, recently strong readings for jobs growth and manufacturing activity could disrupt this timeline and push cuts even further down the road.

This week’s CPI and PPI reports loom large. Hotter-than-expected inflation figures could further unsettle financial markets. Conversely, cooler readings could bolster confidence in the possibility of a rate cut during the summer, sustaining the market rally.

Wall Street also will carefully parse the FOMC’s minutes for clues as to policy. Fed officials in recent days have been making hawkish remarks about inflation and rates, unnerving investors.

Rising yields are testing pricey stocks…

Investors are clearly nervous about the Federal Reserve’s intentions on interest rates. The benchmark 10-year U.S. Treasury yield closed at 4.42% on Monday, above its 20-, 50- and 200-day moving averages (see chart).

The yield slipped 1.31% Tuesday to close at 4.36%, which is still too elevated for the equity market’s comfort.

The 10-year Treasury yield serves as a barometer for borrowing costs across the economy. When it rises, so do interest rates on various loans, including mortgages and corporate debt.

This increase in borrowing costs can weigh heavily on businesses, constraining their ability to invest in expansion projects, research and development, and hiring. With diminished capital expenditure, corporate earnings may suffer, leading to downward pressure on stock prices.

The allure of bonds strengthens as their yields rise, drawing investors away from equities in search of safer returns. Traditionally, bonds compete with stocks for investor attention, and as bond yields become more attractive, the relative appeal of equities lessens.

Despite the anticipated softening of employment conditions, the economy is starting from a position of remarkable strength. The rise of bond yields signals the market’s recognition that strong economic data poses a challenge to the Fed’s ability to implement rate cuts in the near future.

The CME Group’s FedWatch tool currently puts the odds of a rate cut at the FOMC’s April 30-May 1 meeting at zero. The Fed is expected to stand pat.

Read This Story: Economic Growth: Too Much of a Good Thing?

First-quarter 2024 earnings season will kick off on Friday, with the large U.S.-based banks scheduled to report. The operating results of these banking behemoths are considered barometers of future economic growth.

Overall, S&P 500 earnings in Q1 are projected to rise 3.1% year-over-year, according to FactSet. Seven of the 11 S&P 500 sectors are projected to report year-over-year earnings growth, led by utilities, information technology, communication services, and consumer discretionary. On the other hand, four sectors are predicted to report a year-over-year decline in earnings, led by energy and materials.

Looking ahead to the full year, S&P 500 earnings are expected to grow by over 10% year-over-year.

Regardless, equity valuations are high and many stocks are priced for perfection. The forward 12-month price-to-earnings (P/E) ratio for the S&P 500 is 20.5. This P/E ratio is above the five-year average (19.1) and above the 10-year average (17.7).

Bad news in forthcoming economic data could trigger a pullback. But markets rarely move straight up (or down).

The main U.S. stock market indices closed little changed on Tuesday as follows:

• DJIA: -0.02%
• S&P 500: +0.14%
• NASDAQ: +0.32%
• Russell 2000: +0.34%

Equity markets have been strong recently so a pullback is likely, but the predominant direction in equities this year is bullish. Look at any near-term corrections as buying opportunities.

Crypto on the rise…

As central banks move markets via monetary policy decisions, investors have sought refuge in decentralized assets such as Bitcoin (BTC) and Ethereum (ETH), which are perceived as immune to government manipulation and control.

Additionally, advancements in blockchain technology and decentralized finance (DeFi) have expanded the utility and functionality of cryptocurrencies, attracting a broader audience of investors and users.

Every portfolio should have exposure to crypto. But you need to be informed, to make the right choices. The experts at Investing Daily have done the homework for you.

Want to tap crypto’s massive money-making opportunities? Start receiving our FREE e-letter, Crypto Investing Daily. Click here now!

John Persinos is the editorial director of Investing Daily.

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