The heavyweight U.S. CPI data is coming on Tuesday, with retail, consumer confidence, and other data taking the stage. Will the "Big Seven" dominate the market and face a major test?

Last Friday, a sell-off in tech stocks led to a market downturn, with the stock market closing lower. The NASDAQ Composite Index, which has a significant weighting in tech stocks, led the decline with a drop of over 1%.

However, investors continue to focus on tech leaders outside the "Big Seven" in the US stock market to drive the next round of rebound. The Pro UltrPro Shrt S&Pro 500, with equal weightings, recorded a weekly gain for the 7th consecutive week.

Zhitong App learned that this week, investors will face the final major test before the Federal Reserve meeting on March 20th. The February Consumer Price Index (CPI) report released on Tuesday will provide the latest inflation situation, and the latter part of the week will also see the release of retail sales and consumer confidence reports.

In addition, quarterly reports from Dollar Tree (DLTR.US), Dollar General (DG.US), Dick's Sporting Goods (DKS.US), Adobe (ADBE.US), and Ulta Beauty (ULTA.US) will be the highlights of this week.

Price Confirmation

Federal Reserve Chairman Powell has repeatedly stated that he hopes to have more "confidence" in the downward path of inflation before cutting interest rates.

Ahead of the CPI data release on Tuesday, the January CPI data was hotter than market expectations, implying that inflation may slow down or face "hiccups," leading many investors to adjust their expectations and believe that the number of rate cuts this year will decrease.

According to foreign media forecasts, Wall Street expects the overall inflation rate in February to reach 3.1%, the same as January, with a monthly inflation rate of 0.4%, higher than January's 0.3%.

The "core" price index, excluding food and energy, is expected to grow by 3.7% year-on-year, slightly slower than January's 3.9%. The monthly core price index is expected to rise by 0.3%, lower than January's 0.4%.

In a research report released on Friday by the team of economists led by Jay Bryson at Wells Fargo, they wrote, "The January CPI data was hotter than expected, once again raising concerns about whether inflation can quickly fall back."

"Despite a strong start to the year, we believe the trend of slowing inflation persists. The February data will show that although the inflation rate remains frustratingly high, the underlying trend has not strengthened." Retail Rebound?

Retail sales in January saw the largest decline since March 2023, but economists predict that this trend will not continue into February.

The retail report on Thursday morning is expected to show a MoM increase of 0.8% in February retail sales, rebounding from a 0.8% decline in the first month of the year.

According to Bloomberg data, excluding automobiles and natural gas, economists expect a 0.2% MoM increase in sales, compared to a 0.5% decline in January.

Economists at Oxford Economics stated in a report on Friday, "Following the weakness in January due to weather factors and the strength from tax refund season, retail sales in February will rebound," "This is expected to drive first-quarter consumer spending to an annualized growth rate of over 2%, which is a strong pace."

Market Changes

There have been noticeable changes in market trading behavior following the release of the employment report last Friday.

After weeks of AI-driven stock market gains, Nvidia (NVDA.US) fell by nearly 5%. Other popular tech stocks that were hyped in the AI boom, such as Arm (ARM.US) and Dell (DELL), also experienced declines of around 4%.

Previously, there was a divergence in trading among the "Big Seven" tech stocks, especially with Apple and Tesla underperforming. Strategists believe this may pave the way for a broader market rally in the near future.

This trend persisted last week, with the equal-weighted Pro UltrPro Shrt S&Pro 500 hitting its first historical high in over two years. During Friday's sell-off, both this index and the small-cap Russell 2000 index outperformed the broader market.

"We believe the 'MagSeven' will become the 'LagSeven'," said Craig Johnson, Chief Market Technician at Piper Sandler, "At this point, we expect to see the market enter a wide-ranging consolidation phase."

Fewer Mentions of Economic Recession

Johnson's view has become a common sentiment on Wall Street at the beginning of 2024. The rationale behind the expected rebound in other stocks, apart from tech leaders, is the continuous improvement in earnings expectations and the overall health of the U.S. economy. The situation remains largely unchanged. Michael Feroli, Chief U.S. Economist at JPMorgan Chase, pointed out in February after the release of the employment report that based on the continued strengthening trend in the labor market, the company has raised its annualized GDP growth forecast for the second quarter from 0.5% to 1.5%.

Strategists believe that the upward revision of these economic expectations will be reflected in the profitability of many companies, not just in the tech sector. Various companies are telling similar stories.

In addition, research from FactSet shows that during earnings conference calls from December 15th to March 7th, 47 Pro UltrPro Shrt S&Pro 500 companies mentioned the term "economic recession." This is the lowest number of companies mentioning "recession" in two years, and it is also below the average mention rate in the past five and ten years.