What's next for the S&P 500 after Friday's inflation data

The S&P 500 added 2.7% last week, buoyed by strong earnings reports from technology giants Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL), as well as an in-line PCE report for March.

This is despite Meta Platforms (NASDAQ:META) witnessing a sharp decline of over 10% in its stock price following a higher capex/opex forecast.

S&P 500 companies beating earnings estimates this quarter have seen a median share outperformance of just 0.2%, while those missing estimates have seen their shares underperform by a median of 4%, marking the largest gap in at least eight years.

What will Fed do next? Economists discuss

Inflation data has also been a focus last week in addition to the Q1 earnings season. The March core PCE inflation showed a month-on-month rise of 0.32% and a year-on-year increase of 2.8%.

This has led economists at Citi to anticipate a Federal Reserve rate cut in July, with a total of 100 basis points of cuts expected this year. The bank notes that while activity data, particularly in the labor market, may prompt a June cut, spending data was robust in March, with services strength appearing increasingly concentrated in sectors like healthcare.

"With just one month of inflation data for April before the June FOMC meeting, officials will likely have to wait until July to gain 'greater confidence' that inflation is slowing," they wrote in the report.

Evercore ISI economists pointed out that while March's headline and core price deflators were as expected, estimates for January and February were revised upwards.

They forecast an increase in payroll employment of +200K in April, with the unemployment rate dipping to 3.7%, and average hourly earnings growing by +0.3% month-on-month, or 4.1% year-on-year.

Elsewhere, Bank of America's economists said that Friday's data "is indicative of strong demand rather than "stagflation"."

"That should keep the Fed on hold in the near term," they argued. 

The coming week is poised to be eventful with Amazon (NASDAQ:AMZN) set to report earnings on Tuesday and Apple (NASDAQ:AAPL) on Thursday.

Moreover, the Federal Reserve is scheduled to release its monetary policy statement on Wednesday after a two-day meeting.

According to Navellier & Associates, this week's meeting and FOMC statement are "going to be a big deal."

"The Fed typically cuts key interest rates before Presidential elections and this year is expected to be no different so the Fed interest rate cuts are still in the pipeline as Fed Chairman Jerome Powell has telegraphed," they said.

"But we will see what the Fed thinks going forward."