Stocks could soar to new heights in week ahead — even though inflation data may come in hot

Traders work at the New York Stock Exchange (NYSE), September 30, 2021 in New York City. Spencer Platt | Getty Images
Stocks could reach new heights this week, even though investors are facing fresh data that could show the largest year-over-year increase in consumer inflation for more than 30 years. After a week of monumental events, stocks reached record levels on Friday. This was after the Federal Reserve announced that it would stop buying bonds, its first major step away from the easing measures that it had put in place to combat the pandemic.

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The S&P 500 saw a 2% increase in week-end trading, reaching a new high of 4,697. The Dow rose 1.4% to 36.327 and the Nasdaq increased 3% to record 15,971. Leo Grohowski (chief investment officer at BNY Mellon Wealth Management) stated that the key drivers of the market are intact earnings and interest rates. "I believe the Fed gave the equity markets what they were looking for...which was an awareness of inflation and not an overreaction. We're still digesting the really strong earnings season.

The Fed anticipates that it will end its $120 billion per month bond purchases by the middle next year. Some economists predict that the central bank will raise interest rates at this point. Jerome Powell, Fed Chairman, assured markets that the central bank still views inflation as temporary but that it would take action if it becomes more severe. "I believe investors are giving the green light for the equity market, at least in short-term. It's difficult to disagree with that." David Donabedian (chief investment officer at CIBC Private Wealth Management) stated that there are more concerns when looking at six months. He said that inflation is the biggest concern, which he believes is not temporary. "I would expect a rate increase almost immediately after the tapering process has been completed, which is in mid-2022."

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