The US stock market experienced a significant upswing last week, culminating in a robust Friday rally that propelled major indexes to their highest levels in almost two months. This positive trend sets a dynamic backdrop for investors as they navigate a week brimming with critical updates on US consumers' health, especially with the holiday shopping season gaining momentum.
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A pivotal moment will be Tuesday's release of the October Consumer Price Index (CPI) report. This report is crucial for investors seeking insights into inflation trends, particularly after recent statements from Federal Reserve officials suggesting the possibility of continued rate hikes.

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Retail Earnings Spotlight:
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The spotlight will also be on major retailers like Home Depot {{ m-tag option="price" ticker="HD" currency="USD" }}, Target {{ m-tag option="price" ticker="TGT" currency="USD" }}, and Walmart {{ m-tag option="price" ticker="WMT" currency="USD" }}, who are among the key players in a series of corporate earnings reports focusing on consumer behavior. Additionally, Macy's {{ m-tag option="price" ticker="M" currency="USD" }}, TJX Companies {{ m-tag option="price" ticker="TJX" currency="USD" }}, and BJ's Wholesale (BJ) are also scheduled to announce their results. The retail sales data for October, due Wednesday morning, will further illuminate the current state of consumer spending.

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US Debt Outlook:
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International concerns, particularly regarding China's economic health, will draw attention to the financial results of Alibaba {{ m-tag option="price" ticker="BABA" currency="USD" }} and JD.com {{ m-tag option="price" ticker="JD" currency="USD" }}. Moreover, Moody's recent revision of the US government's debt outlook to "negative" will likely capture investor interest, as rising interest rates increase the burden of the government's expanding debt.

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Year-to-Date Index Gains:
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The stock market saw a broad-based advance last week, with the S&P 500 breaking its eight-day winning streak only on Thursday. Year-to-date, all three major indexes have shown gains, with the Nasdaq (^IXIC) leading at over 30%, the S&P 500 (^GSPC) up by 15%, and the Dow Jones Industrial Average (^DJI) increasing by 3.4%.

Federal Reserve Chair Jerome Powell's recent comments at an IMF event have led to a recalibration of expectations regarding the Fed's interest rate policy. Powell emphasized the Fed's readiness to tighten policy further if necessary while also advocating a cautious approach to avoid being misled by short-term data fluctuations or the risk of excessive tightening.

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Inflation Forecast:
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The upcoming CPI data anticipates a headline inflation increase of 3.3% year-over-year in October, a slight decrease from September's 3.7%. This expected slowdown is largely attributed to a reduction in energy prices. The core CPI, which excludes food and energy, is predicted to remain steady at a 4.1% annual increase.

EY Chief Economist Greg Daco suggests that moderating wage and job growth, a slowdown in demand, and easing rent inflation could lead to further disinflation, supporting the Fed's stance on maintaining the current fed funds rate.
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The week ahead will also offer deeper insights into consumer spending trends, a crucial element of the 2023 economic narrative. Despite a resilient consumer sector, Wall Street economists anticipate the October retail sales report to reveal some weakening in consumer spending. Bank of America's aggregated data indicates a slight decline in spending during October, potentially influenced by lower energy prices.

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Walmart and Target's Outlook:
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Investors will closely monitor Walmart and Target's corporate reports for insights into consumer behavior, retail crime, holiday shopping trends, and the impact of resumed student loan payments on spending. Walmart's stock has seen a 16% increase in 2023, benefiting from budget-conscious consumers amidst inflationary pressures. In contrast, Target's stock has declined by nearly 35%, reflecting its higher reliance on discretionary spending.

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Walmart and Target Outlook:

Walmart: 16% stock increase in 2023, favored by budget-conscious consumers.

Target: Incomplete data, but a contrasting trend to Walmart indicated.

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