Stocks finished last week lower after a sell-off in tech that saw the Nasdaq Composite (^IXIC) lead the losses, falling more than 1%.
Still, the equal-weighted S&P 500 logged a weekly gain for the 7th straight week as investors continue to look outside the "Magnificent Seven" tech leaders to power the next leg of the market rally.
In the week ahead, investors will face the final major test before the Federal Reserve's March 20 meeting with the February Consumer Prince Index (CPI) report out Tuesday, which offers an updated look at inflation. Retail sales and consumer sentiment reports will feature on the economic calendar in the back half of the week.
A lighter earnings schedule is on deck with Dollar Tree (DLTR), Dollar General (DG), Dick's Sporting Goods (DKS), Adobe (ADBE), and Ulta Beauty (ULTA) highlighting the list of quarterly reports.
Price check
Federal Reserve Chair Jerome Powell has said repeatedly the central bank wants more "confidence" in inflation's path downward before cutting interest rates.
Tuesday's CPI reading follows a hotter-than-expected January report that showed inflation's decline could be "bumpy," and prompted investors to price in fewer interest rate cuts this year.
For February, Wall Street expects headline inflation to log an annual gain of 3.1%, unchanged from the headline number in January, according to estimates from Bloomberg. Prices are set to rise 0.4% on a month-over-month basis, an increase from the 0.3% rise seen in January.
On a "core" basis, which strips out food and energy, prices are expected to have increased 3.7% year over year, a slowdown from the 3.9% increase seen in January. Monthly core price increases are expected to clock in at 0.3%, lower than the 0.4% increase seen in January.
"January's CPI data came in hotter than expected and renewed concerns about how quickly inflation could be brought to a heel," Wells Fargo's team of economists led by Jay Bryson wrote in a research note on Friday.
"Despite the strong start to the year, we ultimately believe the disinflation trend remains in place. We expect the February data to show that while inflation remains frustratingly high, the underlying trend is not strengthening."
Retail rebound?
In January, retail sales posted their steepest decline since March 2023.
But economists don't expect that trend continued in February.
Economists expect Thursday morning's report will show retail sales grew 0.8% month over month in February, a rebound from the 0.8% decline seen in the first month of the year.
Excluding autos and gas, economists project sales increased 0.2% month over month compared to a 0.5% decline in January, according to data from Bloomberg.
"Retail sales will bounce back in February following the weather-related weakness in January and the stronger tax refund season," wrote economists at Oxford Economics in a note on Friday, "which would leave consumption growth on track for an above-2% annualized gain in Q1, a strong pace."
A shift in the market
The market action following Friday's jobs report showed a distinct shift in trading action.
After weeks of an AI-fueled stock market rally, Nvidia (NVDA) fell nearly 5%. Other popular tech trades that caught a bid in the AI euphoria also slumped, including roughly 4% drops from Arm Holdings (ARM) and Dell (DELL), among others.
The move follows a divergence in the Magnificent Seven trade that has emerged — notably, lagging performance from Apple and Tesla. This, strategists have argued, could continue to open a lane for a broadening of the market rally.
This trend was seen throughout the week, with the equal-weight S&P 500 hitting its first record high in more than two years. Both that index and the small-cap Russell 2000 Index (^RUT) outperformed the broader market during Friday's sell-off.
"We think the Mag Seven is going to become the Lag Seven," Piper Sandler chief market technician Craig Johnson told Yahoo Finance Live.
"At this point in time, we're going to start to see a broadening out of this market."
Fewer companies mention recession
Johnson's call for a broadening out of the market rally has been a common one across Wall Street to start 2024. The case for other stocks to rally is rooted in increasing earnings estimates for stocks outside the tech leaders and the overall health of the US economy.
That story largely remains intact. JPMorgan chief US economist Michael Feroli noted after the February jobs report that continued strength in the labor market pushed the firm's outlook for second quarter gross domestic product (GDP) to 1.5% annualized from 0.5%.
Strategists believe these increased economic forecasts will be reflected in company earnings beyond just tech stocks. And companies are telling a similar story.
During earnings calls spanning from Dec. 15 to March 7, 47 S&P 500 companies cited the term "recession," according to research from FactSet. It was the lowest number of companies mentioning the phrase in two years and was below both the five- and 10-year averages of mentions.
Weekly calendar
Monday
Economic data: New York Fed one-year inflation expectations, February (3% previously)
Earnings: Asana (ASAN), Casey's (CASY), Oracle (ORCL), Vail Resorts (MTN)
Tuesday
Economic data: NFIB Small Business Optimism, February (89.9 previously) Consumer Price Index, month-over-month, February (+0.4% expected, +0.3% previously); Core CPI, month-over-month, February (+0.3% expected, +0.4% previously); CPI, year-over-year, February (+3.1% expected, +3.1% previously); Core CPI, year-over-year, February (+3.7% expected, +3.9% previously); Real average hourly earnings, year-over-year, February (+1.4% previously)
Earnings: Allbirds (BIRD), Clover (CLOV), Kohl's (KSS), Manchester United (MANU), On Holdings (ONON)
Wednesday
Economic data: MBA Mortgage Applications, week ending March 8 (+9.7%)
Earnings: Dollar Tree (DLTR), Lennar (LEN), Vera Bradley (VRA), Williams-Sonoma (WSM)
Thursday
Economic data: Initial jobless claims, week ending March 9 (217,000 previously); Retail sales, month-over-month, February (+0.8% expected, -0.8% previously); Retail sales ex auto and gas, February (+0.2% expected, -0.5% previously); Producer Price Index, month-over-month, February (+0.3% expected, +0.3% previously); PPI, year-over-year, February (+0.9% previously)
Earnings: Adobe (ORCL), Blink (BLNK), Build-A-Bear (BBW), Dollar General (DG), Dick's Sporting Goods (DKS), Ulta Beauty (ULTA)
Friday
Economic data: University of Michigan consumer sentiment, March preliminary (77.0 expected, 76.9 previously); Import prices, month-over-month, February (+0.2% expected, +0.8% previously); Export prices, month-over-month, February (+0.1% expected, +0.8 previously); Industrial production, month-over-month, February (+0.0% expected, -0.1% previously)
Earnings: No notable earnings set for release.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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