Investors Focus Again on Economy After Trump Euphoria

Most investors had a good week last week. 

The SPDR S&P 500 ETF Trust (SPY) raced to record highs as optimism about potential corporate tax cuts and deregulation swept the markets following Donald Trump’s decisive election win.

There will be plenty more Trump news to digest once the new president officially enters office early next year. In the meantime, investors may shift their focus back to the here and now.

In that regard, there are a few important data points that could provide hints as to the health of the U.S. economy, as well as what the Fed might do with interest rates over the next several months.

On tap this week are the consumer price index figures for October, set for release on Wednesday.

The government is expected to report that the headline CPI and the core CPI grew by 0.2% and 0.3% month-over-month, respectively, last month—equal to the September growth.

On a year-over-year basis, growth in the headline CPI is anticipated to tick up from 2.4% to 2.6%, while growth in the core CPI is anticipated to hold steady at 3.3%. The U.S. central bank this week slashed the interest rate by 25 basis points, its second consecutive cut, noting that inflation had "made progress toward" its goal of 2%, although it remained "somewhat elevated. 

Interest Rate Cut in December?

The CME FedWatch tool is now projecting a 65% probability of a 25-basis point reduction at the Federal Reserve's December meeting. 

Later in the week, we’ll also see data on retail sales for October. The data, which will be unveiled on Friday, is expected to show a 0.3% month-over-month increase in sales, a tad bit lower than the 0.4% seen in September. 

Stripping out autos and gas, retail sales are also expected to have risen by 0.3% versus the 0.5% growth in September.

Taken together, the CPI and retail sales data— if they match economist expectations–should satisfy investors who are increasingly betting on a soft landing.

Growth continues to be strong while inflation, even if higher than the Fed's objective, is down significantly from the lofty levels of the past few years.