The U.S. equity markets posted their largest weekly decline in 2023 as inflation continued to weigh heavily on investor sentiment. While the Dow Jones index fell 2.6%, the S&ampP 500 and Nasdaq indices were down 2.7% and 3.3%, respectively, last week.

The core personal expenditures priced index was up 0.6% in January and 4.7% year over year, which was above consensus estimates. This metric is the preferred measure of inflation for the Federal Reserve. Elevated numbers for inflation indicate the central bank will have to keep raising interest rates in the near term.

In an interview with CNBC, the chief investment officer at Charles Schwab, Liz Ann Sonders explained, “Another reason why the market is having trouble to some degree, I think, is not just about inflation being hotter or concerns that the Fed has to stay tighter for longer.

Sonders added, “But there was just a lot of speculation that kicked back in —speculative froth. And the market tends to move in a contrarian fashion when sentiment gets a little too frothy. So I think some of the move has had to do with sentiment. Not just these macro forces.”

Let’s see what should stock market investors should expect in the upcoming week.

Wall Street earnings

Major retailers, including Target (NYSE: TGT), Costco (NASDAQ: COST), Kroger (NYSE: KR), and Dollar Tree (NASDAQ: DLTR) will be reporting quarterly earnings this week. Target, which is the ninth-largest retailer in the U.S. in terms of revenue, is forecast to report adjusted earnings of $1.39 per share, a decline of 55% compared to the year-ago period. Last week, Target also confirmed it would invest a whopping $100 billion to upgrade supply chain networks and increase online sales.

Recently, retailers such as Walmart (NYSE: WMT) topped Wall Street estimates due to higher non-discretionary spending by consumers. Retail sales in the U.S. were also up 3% in January, despite a higher pricing environment.

Student loans under the radar

The U.S. Supreme Court will hear a couple of cases that could determine if Joe Biden’s student loan exemption plan will pass. The program announced last August is looking to cancel $10,000 of student loan debt per borrower or up to $20,000 for recipients of the Pell Grant.

In case this plan is upheld, around 40 million borrowers could see a part of their student loans canceled, which would cost the government $400 billion.

Will home prices move lower in 2023?

S&ampP Global will release its Case-Shiller National Home Price Index for December this week. Further, Freddie Mac, which is a mortgage originator, will publish the House Price Index, an indicator that tracks the prices of single-family homes.

The Case-Shiller index expects home prices to fall 0.7% in December, the sixth consecutive month of lower home prices. On a year-over-year basis, the index is forecast to gain 6%, which is lower than the 6.8% rise in November and much lower than the 21.3% gain last April. It would also be the smallest increase annually since September 2020.

PMI reading forecast at 47.9

This week will also see the ISM or Institute for Supply Management release the PMI (purchasing managers index) reading for the month of February. The index tracks the strength of the manufacturing and services sectors.

In February, the PMI for manufacturing is forecast to rise to 47.9, compared to 47.4 in January. 

The PMI will rise for the first time in eight months as the industries have experienced a slowdown. A reading of less than 50 indicates a contraction in business activity.

However, non-manufacturing PMI is forecast at 59.2 as activity in the Services sector remains strong.

Target (NYSE:TGT)
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