Investing

Consumer prices rise at fastest clip since 2018, and other news affecting your money in the week ahead

Twenty/20

So much for those worries that the deadly coronavirus might derail the U.S. stock market's rally. The S&P 500 rose 3.3%, for its best week since June, and notched new all-time highs along the way.

Traders are less fearful about the virus's potential economic impact, and other factors also boosted optimism on Wall Street. China announced it will halve tariffs on about $75 billion worth of U.S. imports, companies have reported stronger than expected quarterly earnings results, and there have been some solid economic reports, including the monthly jobs data that showed hiring surged more than expected in January.

The week ahead will be the last big one of earnings season, with 60 companies in the S&P 500 scheduled to report profit results for the fourth quarter. In addition, traders will listen closely to speeches from a top Federal Reserve official who said in January that interest rates are currently in a "good place." Traders see a more than 50% probability that the Fed will cut rates again by the end of July.

On the calendar in the week ahead, economists are projecting that consumer prices rose at the fastest annual pace since October 2018, while consumer spending rose for a fourth straight month.

Here's what to watch in the stock market during the week ahead — and how the news could affect your bottom line.

Economists expect a jump in consumer prices

What's happening: A key measure of inflation, the consumer price index (CPI), is scheduled for release on Thursday. This report tracks the average change in consumer prices, or what you pay for various goods and services, including food and housing.

Economists currently project both that prices increased in January compared with December, and rose at an annual rate of 2.5%, which would be the most since October 2018.

Why it matters: Part of the Federal Reserve's role is keeping prices in check and closely monitoring changes in prices for goods and services. Central bankers track a different measure, called the personal consumption expenditures (PCE) price index, which shows that inflation remains below the Fed's long-term target of 2%. Low inflation was among the reasons policymakers cut interest rates three times in 2019 in an effort to stimulate economic activity.

What it means for you: When prices go up, your dollars don't stretch as far while buying groceries or paying for services. The inflation rate also affects how much you earn and the value of your savings. It can be a good motivator for investing money, and it's important to broader economic growth.

Will consumers spread the love this Valentine's Day?

What's happening: The monthly retail sales report for January is scheduled for release on Friday, February 14. This details how much American consumers spent on things like clothing and food. Economists currently forecast a month-over-month increase in line with December, at 0.3%. If so, that will mark the fourth straight month of gains.

Why it matters: At the same time, traders will try to anticipate if consumers will continue spending at a similar clip in February, especially because Valentine's Day was the fifth biggest holiday spending-wise in 2019, according to the National Retail Federation. This year, the trade group is estimating that consumers will spend an average of $196 celebrating this holiday, up 21% from last year, and for a total of $27.4 billion.

Traders on Wall Street will be monitoring spending around this holiday for an early read on how American consumers are feeling. That's important because economists currently project that consumer sentiment, as measured by the University of Michigan, dipped slightly for the preliminary reading for February that's also due on Friday.

What it means for you: Perhaps you haven't made any changes to your shopping habits, but what your neighbors do matters to the overall economy. And while Americans have generally been resilient, traders will be looking for any shifts that suggest people are feeling more or less confident about spending money — even on things that might seem trivial, like Valentine's Day.

The bottom line

In the stock market outlook for both February and beyond, Wall Street will be closely tracking the presidential election season, which experts have said has the potential to rattle the market. The New Hampshire primary is scheduled for Tuesday.

Even though the market has rebounded after its recent bout of bumpiness, experts believe there's likely to be more turbulence ahead. Still, they forecast that stock prices will continue to rise in 2020.

Remember that this type of short-term turbulence can be a good opportunity to buy stocks at lower prices and continue adding money regularly to your portfolio, focusing on ways to manage risks and resisting the urge to sell investments. No matter what happens in any given week, it's important to keep perspective and avoid letting headline news affect your long-term investment strategy.

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