Equities are striving to maintain their recent momentum, buoyed by favorable earnings reports and comments from the Federal Reserve. However, traders have approached the week with caution in anticipation of pivotal inflation reports, especially after recent data revealed a rise in consumer inflation expectations. A moderating yield curve could suggest that fixed-income investors are gaining confidence that persistent above target inflation is under control.

Stock market indices are nearing a critical technical decision point. The S&P 500 has recovered from its April downturn and is now testing the all-time high of 5,260 set in March. This resistance level, coupled with other medium-term uptrend factors, is crucial for sustaining momentum. A breakthrough by the bulls could clear the way for further gains, while a setback may necessitate a period of consolidation before retesting.

This week, inflation is at the forefront of the economic data agenda. Tuesday’s release of the Producer Price Index (PPI) will shed light on medium-term inflation trends, paving the way for Wednesday’s pivotal Consumer Price Index (CPI) report. Persistent above target inflation has been a major concern for investors, and any sign of easing could provide the Fed with more leeway in adjusting its policy. With rising hopes for potential rate cuts later this year, easing inflation is essential for keeping this option viable. Speaking engagements from several Fed members later in the week will provide further insights from key central bank officials.

Our Newton models indicate a resurgence in Foreign Developed markets, particularly in Europe where stocks have recently outperformed their US counterparts. Utilities continue to lead, showing robust performance over the past few weeks, with cyclical sectors like Industrials and Materials also making strong gains. High Yield bonds have suffered given hesitation for higher risk credits from investors.