Earnings from retail giants Walmart (WMT) and the Home Depot (HD) this week, along with the latest update on the Federal Reserve's preferred inflation measure and the minutes from the Fed's latest policy meeting will be highlights in the holiday-shortened week ahead.

U.S. stock and bond markets will be closed on Monday for President's day.

Results from Walmart and Home Depot, both due out before the market open on Tuesday, will offer further updates on the health of the U.S. consumer, which remains resilient in the face of stubbornly high inflation, most recently evidenced by January's retail sales data out last week.

MIAMI, FLORIDA - JANUARY 24: A worker stocks the shelves at a Walmart store on January 24, 2023 in Miami, Florida. (Photo by Joe Raedle/Getty Images)

On the economic data side, all eyes will be on the Personal Consumption Expenditures (PCE) price index — the Fed's most closely watched assessment of how quickly prices are rising across the economy — which is set for release Friday morning.

Prices in January likely jumped 0.5% over the prior month as measured by the PCE index, according to data from Bloomberg. in December PCE inflation rose just 0.1% month-on-month. On an annual basis, PCE inflation is projected to come in at 5% in January, no improvement from the year-over-year figure reported at the end of 2022.

Core PCE, which removes the volatile food and energy components out, is set to show a 0.4% climb over the prior month — ticking up slightly from 0.3% in December — and a marginally slower rise of 4.3% over the year, down from 4.4% in the last month of 2022.

If realized, those numbers would support recent indications inflation is not falling at the pace and extent investors have been hoping for, even as prices have stabilized from the peaks of the current cycle.

The Consumer Price Index (CPI) out last week showed inflation picked up in January, while cooling only slightly over the year to 6.4%. And producer prices shot up by the biggest amount in seven months in January.

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U.S. Federal Reserve Chair Jerome Powell speaks to attendees of a meeting of The Economic Club of Washington D.C., U.S., February 7, 2023. REUTERS/Amanda Andrade-Rhoades

This view has thwarted the market's recent momentum.

On Friday, the Dow Jones Industrial Average logged its third-straight losing week for the first time since September, closing down 0.1% for the five-day trading period.

The S&P 500 was down 0.3% for the week, its second consecutive week in the red, while the Nasdaq was an outlier, notching a weekly gain of 0.6%.

S&P 500 (^GSPC)

The bumpier-than-anticipated road to restoring price stability and strong economic data to start the year — nonfarm payrolls rose by 517,000 in January while retail sales surged 3% — have prompted Wall Street banks to revise their expectations for upcoming rate hikes by the Federal Reserve.

Teams at Goldman Sachs and Bank of America said this week they estimate three more rate increases this year; ahead of February's interest rate increase, some market participants had seen that move potentially marking the end of the Fed's rate hiking cycle.

Economists at Goldman Sachs and BofA each added additional 25-basis-point rate hikes in June to their forecasts, bringing both banks' projected estimates for the peak of the federal funds rate in this cycle to a new range of 5.25%-5.5%.

Bank of America also indicated evidence is strong for a potential 0.50% increase at the Federal Reserve's next meeting in March.

"In our view, several forces would have to come together to cause the Fed to revert to a larger 50-basis-point rate hike," a team of strategists led by Michael Gapen said in a Friday note.

Minutes from the Federal Open Market Committee's (FOMC) meeting Jan. 31-Feb. 1 out Wednesday afternoon will offer insight into the thinking behind officials' 25-basis-point increase earlier in the month.

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Cleveland Fed President Loretta Mester said in a speech Thursday she would have favored raising interest rates by 0.50%, asserting that she and her colleagues have further work to do in taming inflation.

"The FOMC has come an appreciable way in bringing policy from a very accommodative stance to a restrictive one, but I believe we have more work to do," Mester said at a Global Interdependence Center conference at the University of South Florida Sarasota-Manatee College of Business.

"I don’t want to surprise the markets," Mester said. "We're better if we explain. In that meeting there was an economic case for [a 50 basis point increase] in my view, but the market wasn't expecting that. That does factor into my views about the proper thing to do at a meeting."

On the earnings side, Walmart will kick off a busy week of quarterly reports from Corporate America on Tuesday.

CFRA Research senior equity analyst Arun Sundaram predicts the supermarket giant will see continued trade-down benefits from inflation, particularly from higher-income customers, which is expected to boost its membership program Walmart+.

Macroeconomic uncertainly, however, does pose some downside risks to the company. Among those potential headwinds are weaker consumer spending from lower-income consumers given elevated inflation and rising interest rates, bigger markdowns on inventories, and continued product, wage, and transportation cost pressures.

Other notable earnings results in the upcoming week will come from the Home Depot, Alibaba (BABA), Keurig Dr Pepper (KDP), Live Nation (LYV), Moderna (MRNA), PG&E (PCG), and Warner Bros. Discovery (WBD), among others.

Beaten-up names like Coinbase (COIN) and Carvana (CVNA) will also report numbers after a junk rally that has lifted shares this year.

Source : Fed minutes, PCE inflation, Walmart earnings: What to know this week