US stocks face volatility again? Inflation data and Powell's speech may provide clues on interest rate path, while the shadow of Trump's tariff policy lingers

According to Zhitong Finance APP, the U.S. stock market saw little change in the first week of February—the S&P 500 index remained flat, while the Nasdaq and Dow Jones indices fell by about 0.5%. Investors digested earnings reports from major tech companies, a stronger-than-expected U.S. non-farm payroll report for January, and ongoing updates on President Trump's tariff policies.

This week, there are many highlights in the global financial markets. The upcoming U.S. January CPI and PPI data will provide the latest clues about U.S. inflation. Federal Reserve Chairman Jerome Powell will attend a congressional hearing, and the market is closely watching for guidance on the timing of potential Fed rate cuts. Meanwhile, Trump's tariff policy remains an important factor influencing the market—Trump announced last week that he would announce reciprocal tariffs on several countries this week.

In terms of corporate earnings, several companies, including McDonald's (MCD.US), Coca-Cola (KO.US), Super Micro Computer (SMCI.US), and Airbnb (ABNB.US), will release their latest earnings reports.

Charles Schwab wrote in its market outlook that the potential for trade disruptions caused by tariffs and subsequent inflationary pressures has negatively impacted market sentiment. The firm believes that while the recent decline in 10-year U.S. Treasury yields is favorable for the stock market, it seems related to lower long-term economic growth expectations; although it is unclear to what extent and for how long Trump will impose tariffs and what the economic impact will be, increased uncertainty has led to renewed volatility in recent weeks.

Inflation Back in Focus

Investor attention has now returned to inflation data in search of clues affecting the outlook for benchmark interest rates. The U.S. January CPI will be released on Wednesday. Wall Street economists expect the U.S. January CPI to rise by 2.9% year-on-year, unchanged from the previous value; the core CPI, excluding food and energy prices, is expected to rise by 3.1% year-on-year, down from the previous value of 3.2%.

The U.S. January PPI will also be released on Wednesday. Economists expect the U.S. January PPI to rise by 3.2% year-on-year, down from the previous value of 3.3%; the core PPI is expected to rise by 3.3% year-on-year, down from the previous value of 3.5%.

Meanwhile, the U.S. January retail sales data, known as "terrifying data," will be released on Friday. Economists expect U.S. January retail sales to decline by 0.1% month-on-month, compared to a previous month-on-month increase of 0.4%.

If the upcoming inflation data indicates that inflation remains sticky, or if retail sales data shows that consumer support remains strong, it may further weaken market expectations for Fed rate cuts. Analysts say that previous signs of stickiness in U.S. inflation data have intensified speculation that interest rates may remain unchanged in the coming months. The U.S. money market expects the Fed may cut rates in June or July, but pricing for rate cuts throughout the year has not yet reached two cuts.

Despite most corporate earnings reports released last week exceeding expectations, the stock market has failed to find a clear direction, and macro factors continue to bring market volatility. Last Friday, U.S. stocks fell after the latest consumer confidence survey from the University of Michigan showed that respondents' one-year inflation expectations reached the highest level since November 2023.

Data showed that the one-year inflation expectation for February from the University of Michigan jumped from the previous value of 3.3% to 4.3%, marking the fifth time in 14 years that the one-year inflation expectation has risen by more than one percentage point The rise in inflation expectations is "partly due to the belief that it may be too late to avoid the negative impacts of tariff policies."

Powell's Speech

Powell will attend hearings in the Senate and House on Tuesday and Wednesday to testify on the semiannual monetary policy report and answer questions. His remarks at the hearings may provide more clues about the Federal Reserve's interest rate path.

The market will closely monitor his views on the economic outlook, inflation targets, and interest rate policies. Powell stated in January that the Federal Reserve is not in a hurry to further cut interest rates. Analysts expect Powell to emphasize that economic resilience is a key reason why the Federal Reserve is not rushing to lower rates further. With the U.S. economy in good shape, Federal Reserve officials also have time to assess the impact of the new Trump administration's changes in trade, immigration, and tax policies.

Trump's Tariffs

U.S. stocks rebounded last Monday after initially falling due to Trump's delay in imposing tariffs on Canada and Mexico. However, as investors debate the potential impact of tariffs on inflation and subsequently on monetary policy, how Trump will implement his tariff policies remains an open question.

Last week, Trump announced that he would announce reciprocal tariffs on multiple countries this week. One hour before the Asian markets opened on Monday, Trump threatened to impose a new 25% tariff on all steel and aluminum imports. Additionally, Trump will hold a press conference on Tuesday or Wednesday to reveal "details of the reciprocal tariffs."

Rick Rieder, Chief Investment Officer of Global Fixed Income at BlackRock, stated in a report last Friday that it may take two weak employment reports to trigger discussions about the Federal Reserve restarting its rate-cutting cycle, but the risks surrounding Trump's policies, including tariffs and immigration crackdowns, complicate the outlook. Rieder said, "As we and the Federal Reserve closely monitor employment and inflation reports, we must also pay close attention to market news and the reactions surrounding these events to understand when the Federal Reserve and market makers will be confident in lowering rates to near long-term neutral levels."

Goldman Sachs indicated that one way U.S. stocks could face pressure is through high tariffs posing downside risks to earnings expectations and return expectations for the S&P 500 index. Goldman Sachs stated, "If company management decides to absorb higher input costs, profit margins will be squeezed. If companies pass on higher costs to end customers, sales volumes may be affected." The firm estimates that for every 5 percentage points increase in U.S. tariffs, earnings per share for the S&P 500 index will decrease by about 1%-2%