Markets are set to refocus on critical economic data, a notable chart pattern, and some seasonal trends as May draws to a close.
The spotlight this week is on the Personal Consumption Expenditures (PCE) report, the Federal Reserve's preferred inflation measure. Scheduled for release on Friday, the PCE is anticipated to hold steady at 2.8% year-over-year.
Unlike the Consumer Price Index (CPI) and Producer Price Index (PPI), the PCE has not shown significant upside surprises and continues its gradual decline.
“A PCE number in line or better than expectations will help bolster Jerome Powell’s more dovish talk that we could be closer to that first anticipated rate cut,” writes Freedom Capital Markets (NASDAQ:FRHC) chief global strategist Jay Woods in his latest newsletter.
Meanwhile, investors are still digesting the latest blockbuster earnings report from AI giant Nvidia, which blew past expectations once again.
That led markets to new highs last Friday, driven by Nvidia's momentum, but the gains were quickly erased as the market closed at the day's lows.
Woods, in his newsletter, calls this price action a “bearish engulfing candle,” a chart pattern that historically indicates a short-term reversal.
Woods cites four prominent instances of this pattern over the past year, noting that two out of three led to corrections exceeding 5%. The market is now poised to test its 50-day moving average at 5,172 before potentially rebounding to surpass last Thursday's high of 5,341.
Adding to the week's dynamics, eight Federal Reserve officials are scheduled to speak. Their remarks will be closely monitored for any insights ahead of the PCE release, which could influence market sentiment regarding future rate adjustments.
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