Thursday brings the April retail sales report, a crucial gauge of U.S. consumer spending following recent inflation data that has dampened hopes for a near-term Federal Reserve rate cut. The Census Bureau's advance report is due at 8:30 a.m. EDT, with economists forecasting a 0.5% increase in headline sales and a 0.7% rise excluding autos.
This data arrives as the S&P 500 and Nasdaq Composite closed at record highs on Wednesday, driven by technology shares, despite a producer price index that posted its largest monthly gain in four years. The PPI surged 1.4% in April, pushing the annual rate to 6.0%. 'The jump in input prices portends further increases for consumer prices in May,' said Ben Ayers, senior economist at Nationwide.
Consumer inflation also remains elevated. The April CPI rose 0.6% month-over-month and 3.8% year-over-year, with core CPI up 0.4%. Scott Anderson, chief U.S. economist at BMO Capital Markets, described the Fed's battle with inflation as facing 'significant damage' amid the ongoing Strait of Hormuz closure.
Prediction markets reflect near-certainty that the Fed will hold rates steady at its June meeting. Kalshi pegs the odds at 96%, while Polymarket's 'no change' contract stands at 98%. Looking further ahead, Polymarket traders see a nearly 70% probability of no rate cuts in 2026. The central bank's target range remains 3.50%-3.75% under new Chair Kevin Warsh, confirmed by the Senate on Wednesday.
Fed officials are scheduled to speak Thursday, including Governor Michael Barr at 7:00 p.m. and Governor Christopher Waller at 7:30 p.m., which could provide further policy clues.
Beyond domestic data, all eyes are on the Trump-Xi summit in Beijing, scheduled for May 14-15. Nvidia CEO Jensen Huang and Tesla CEO Elon Musk are expected among visiting executives, as Washington seeks to maintain a fragile trade truce and expand U.S. market access in China. The AI trade remains a key market driver, with Nvidia and Tesla both gaining Wednesday on summit anticipation.
Cisco Systems surged 15% after hours following a higher full-year revenue outlook and a spike in AI infrastructure orders from hyperscale cloud customers. This rally could test whether investor enthusiasm for AI-driven growth extends beyond dominant chipmakers like Nvidia.
Morgan Stanley raised its S&P 500 year-end target to 8,000 on Wednesday, emphasizing that the optimism is 'an earnings story, not a multiple expansion one.' However, Thursday's retail sales data could challenge the market's record highs. A strong number driven by price increases rather than volume would add to Fed headaches, while a weak reading could signal consumer fatigue.
Initial jobless claims are also due Thursday, with a consensus estimate of 205,000, along with import and export price indexes from the Labor Department.
