Inflation, Fed minutes, Zuck day two — What you need to know in markets on Wednesday

Myles Udland
Markets Reporter

Wednesday will be busy.

In the morning, the latest data on inflation is set to cross the tape while investors will also pay close attention to mid-morning testimony from Facebook (FB) CEO Mark Zuckerberg.

Zuckerberg will spend a second day on Wednesday facing questions from lawmakers after enduring several hours of questioning before the Senate judiciary and commerce committees on Tuesday.

Among the highlights from Zuckerberg’s testimony Tuesday was a tough line of questioning from Sen. Ted Cruz (R-TX), who pressed Zuckerberg on whether Facebook’s platform is neutral or has an anti-conservative bias, and Zuckerberg’s contention that Facebook is not a monopoly.

Facebook CEO Mark Zuckerberg reacts to a question about the hotel he stayed in last night as he testifies before a joint hearing of the Commerce and Judiciary Committees on Capitol Hill in Washington, Tuesday, April 10, 2018, about the use of Facebook data to target American voters in the 2016 election. (AP Photo/Alex Brandon)

The economic highlight Wednesday morning, however, will come before the market open as the March reading on inflation will cross the tape at 8:30 a.m. ET, with expectations that “core” inflation — which excludes the cost of food and energy is more closely aligned with inflation measures Fed officials pay attention to — will rise 2.1% over the prior year in March.

Core inflation is expected to pick up in the spring as the negative effects of unlimited data plan run off annual comparisons.

Later in the afternoon, the minutes from the Federal Reserve’s latest monetary policy meeting, at which the FOMC voted to raise interest rates by 0.25%, will be released. Investors will use these minutes to look for guideposts on how policymakers see the economy developing and the thinking that went into the Fed’s decision to raise rates in March.

The earnings calendar remains quiet, with the only notable result expected out Wednesday coming from Bed, Bath & Beyond (BBBY).

Additionally, markets will at least keep the news from the White House in their peripheral vision on Wednesday after President Donald Trump’s lawyer Michael Cohen had records seized from his office by the FBI on Monday.

Wall Street cools on stocks. Sort of.

Wall Street strategists are ever-so-slightly cooling on the stock market.

In a note to clients on Tuesday, Lori Calvasina, head of U.S. equity strategy at RBC, cut her year-end price target on the S&P 500 to 2,890 from 3,000.

“The bull is limping,” Calvasina said, “but still moving forward.”

In cutting her outlook for the stock market, Calvasina cited, among other factors, the impact that rising interest rates and inflation will have on corporate margins and the chances for multiple expansion — that is, rising price-to-earnings ratios — in a rising rate environment.

Of course, RBC’s new target implies stocks will gain about 8% in 2018. Stocks rose sharply on Tuesday with the Dow adding 428 points, or 1.8%, and the S&P 500 gaining 43 points, or 1.7%. The S&P 500 is now down just 0.6% for the year.

At the outset of 2018, Wall Street analysts were almost uniformly bullish, with some firms increasing their year-end price targets after the passage of tax reform made strong earnings growth in 2018 a certainty. According to data from Bloomberg, the median Wall Street forecast remains for the index to hit 3,000 by year-end.

Calvasina added that, “With today’s S&P adjustments, we are signaling that we are still constructive on stocks on a 6-12 month view, but that our enthusiasm is a notch lower than where we were to start the year. Our targets are driven by the math, but they do sync up with our view on where markets are headed. We expect 2018 to be a good year, but believe returns will be less robust than those seen 2017.”

And so it isn’t like the firm has turned outright bearish on the stock market, and, frankly, it isn’t likely that sell side commentary is where the early, loud calls on the stock market going up or down will be found. Wall Street research generally moves with the pack.

But that the earnings in 2018, which are still expected to be stellar, are no longer being held up as absolute, no doubt, rock solid reasons to own stocks and expect higher prices is worth paying attention to.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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