Why the S&P 500 Can Shrug Off a Hot Inflation Surprise, and 5 Other Things to Know Before Markets Open.

But the hurdles keep coming, and the next one—Tuesday’s inflation reading—could be the data that trip it up. Economists expect consumer prices to rise 2.9% year over year in January, slowing down from 3.4% in December.

The downward trajectory of inflation is crucial to hopes of a rate cut in March, or even in May. A hotter-than-expected reading risks further delaying the Federal Reserve’s timeline and stalling the market rally.

However, even a negative stock reaction is not guaranteed—the market seems to be in the mood to shrug off disappointments. Fed officials spent much of last week urging patience on rate cuts and that didn’t stop the rally’s momentum.

Earnings season is helping. Around 75% of companies have beaten earnings expectations so far, according to FactSet data. That’s above the 10-year average of 74%. The market is also rewarding those beats more than it typically does—with stocks rising 1.4% over the two days before and two days after earnings, compared with the five-year average of 1%.

With more than 60 companies reporting this week, earnings could once again provide stocks with some protection from other risks.

Perhaps the market doesn’t need the Fed right now—a smooth running economy and solid earnings may be enough to keep investors happy.

—Callum Keown

*** Join Barron’s senior managing editor Lauren R. Rublin and deputy editor Ben Levisohn today at noon when they discuss the outlook for financial markets, industry sectors, and individual stocks. Sign up here.

***

Coming This Week: The First Big Inflation Report for 2024

This week, investors will get their first major inflation reading of the year when January’s consumer price index comes out on Tuesday. Expectations that inflation is cooling enough for the Federal Reserve to start cutting interest rates have helped push the
S&P 500
above 5,000 for the first time.

• Analysts expect the CPI to rise 2.9% from one year ago, which would be half a percentage point lower than December’s rise. Excluding food and energy prices, core CPI is expected to rise 3.7%, from 3.9% previously. The Fed is targeting 2% inflation as a sustainable goal.

• Retail sales data for January are also due out this week. Economists forecast consumer spending to decline 0.2% from the previous month, following December’s 0.6% increase. Excluding autos, retail sales are seen edging up 0.1%, three-tenths of a percentage point less than in December.

• The National Association of Home Builders releases its February Housing Market Index of market conditions and buyer traffic for new home sales. The consensus call is for a 46 reading, two points higher than in January. A reading above 50 indicates a favorable outlook on home sales. The average rate on a 30-year fixed mortgage was 6.64% on Thursday.

• Another inflation measure in the form of the producer price index for January is expected out on Friday. Both the top line and core numbers are expected to rise 0.1% from December. December’s change in core PPI from one year earlier was 1.8%, the lowest since late 2020.

What’s Next: The University of Michigan’s Consumer Sentiment Survey for February is also due out Friday. Expectations are for the reading to remain at 79 from last month, even after a strong holiday season. Consumers’ expectation for inflation in the year ahead was 2.9% in December, the lowest in three years.

—Janet H. Cho

***

Lyft, DoorDash, Instacart Earnings to Show Gig Economy Demand

Gig economy companies will report earnings this week after
Uber Technologies
smashed expectations with a surge in bookings for the quarter. The results this week, from rival ride-hailing company
Lyft,
and delivery app firms DoorDash and Instacart, will give investors a reading on consumer demand for so-called ‘gig economy’ services.

• Ride-hailing apps are rebounding but online grocery delivery spending slowed last year from its pandemic-era boom. Consumers are complaining about food-delivery costs, and gig-economy drivers continue their fight for better pay and benefits.

• Lyft has focused on services that give employees rides to and from work, and services for women and nonbinary drivers and riders, MarketWatch reported. It is offering to pay its drivers at least 70% of what their fare-paying passengers paid, after external fees.

• Jefferies analysts point to
  DoorDash’s
  push into advertising, and delivering items from grocery and convenience stores, which they said could boost profit over the next two years.

• Instacart,
  which had its initial public offering last year, is offering Google Shopping ads to its advertising partners. The ads, which take shoppers from Google to Instacart when they click on them, could help Instacart get more of the advertisers’ spending.

What’s Next:
Airbnb,
the hospitality app that has benefited from an upswing in travel, is expected to report earnings on Tuesday. Analysts see gross bookings rising to $15.2 billion from a year ago, and an increase in the number of nights and experiences booked to 98 million for the fourth quarter.

—Liz Moyer

***

Oil Megadeals Keep Coming With Diamondback Merger

Diamondback Energy
and Endeavor Energy Resources announced a merger Monday that would create an oil-and-gas giant. It’s the latest consolidation in a string of oil megadeals after
Exxon
and
Chevron
opened the floodgates at the end of last year.

• The stock-and-cash deal, creating a leading player in Texas’ Permian basin, values privately held Endeavor at around $26 billion. Diamondback shareholders would own 60.5% of the combined company and Endeavor equity holders would own 39.5%.

• “This is a combination of two strong, established companies merging to create a ‘must own’ North American independent oil company,” Diamondback’s CEO Travis Stice said. “With this combination, Diamondback not only gets bigger, it gets better.”

• It’s the latest megadeal in the oil-and-gas industry after Exxon and Chevron both announced large acquisitions at the end of last year. Exxon agreed to buy Pioneer Natural Resources in October and Chevron announced a deal to buy just a couple of weeks later—each totaling about $60 billion.

What’s Next: Consolidation in the sector looks to be continuing. The trend is being fueled by oil prices enjoying a sweet spot of being not too high and not too low. This makes deals easier to agree on. Prime land in the Permian Basin is also becoming more sought after amid tensions in the Middle East and concerns that a broader conflict could cause supply problems there.

—Callum Keown

***

Elon Musk Required to Testify in SEC’s Twitter Inquiry

Elon Musk and his lawyers have less than a week to agree to a new date to testify for the Securities and Exchange Commission as it investigates his 2022 acquisition of Twitter. A federal judge said the SEC could subpoena Musk and that the request wasn’t unduly burdensome, as he argued.

• Tesla
  CEO Musk has already testified twice, but he has been fighting a subpoena after failing to show for a third round of testimony in September. U.S. Magistrate Judge Laurel Beeler of the Northern District of California ordered the two sides to settle on a date and location.

• Musk’s lawyers have called the investigation “frivolous” and say the SEC is harassing him. The SEC says it gathered more documents, including some by Musk, since his July 2022 testimony and needs to ask him more questions. A lawyer for Musk didn’t return a request for comment on Sunday.

• The SEC is investigating whether Musk committed civil fraud by not disclosing his plans for Twitter when he bought its shares between January and April 2022, according to court filings. Musk initially indicated he was a passive investor, but shortly afterward offered to buy the company for $44 billion.

• Musk also argued in resisting the subpoena that it exceeded the SEC’s authority because it was issued by staff from the Enforcement Division rather than the head of a federal department. Judge Beeler rejected that argument, saying the subpoena is authorized by the Exchange Act.

What’s Next: Musk has also asked the Supreme Court to consider whether the SEC overstepped its authority in enforcing a consent decree that he says infringes on his constitutional free speech rights. In a 2018 settlement, he agreed to have social media posts vetted in advance.

—Janet H. Cho

***

Valentine Treat Sales Come Up Against Soaring Cocoa Costs

Cocoa futures are at record highs, ahead of Valentine’s Day, which is the biggest U.S. holiday for giving chocolates. Disease and drought conditions in West Africa have caused cocoa futures prices to more than double from a year ago, reaching a record high of $5,874 per metric ton on Friday.

• This comes as Americans plan to spend $25.8 billion this Valentine’s Day, or about $185.81 a person, including a record $101.84 on their spouses or significant others, the National Retail Federation (NRF) said. And 57% plan to give Valentine’s candy.

• Consumers aged 35-44 will spend the most on their romantic partners, as well as splurge the most on gifts for pets, the NRF said. But more than half of consumers aged 18 to 34 and 42% of those aged 25 to 34 aren’t observing Valentine’s Day.

• Retailers including
  Walmart,

  Macy’s,
  Kay Jewelers, and
  1-800-Flowers.com
  are rolling out gifts for “Galentine’s Day,” a nonromantic alternative to Valentine’s Day for women to celebrate their friends, or ‘gals,’ which is held a day earlier on Feb. 13. And the Spangler Candy Co. has sold out of its Sweethearts’ “Situationships” boxes of blurry candy hearts for hard-to-define relationships.

• The Hershey Company,
  which derives two-thirds of its U.S. sales from chocolate, raised the price of its products by 6.5% in the fourth quarter from a year ago. Hershey expects historic cocoa prices to limit earnings growth this year, and higher sugar and butter costs could raise prices further.

What’s Next: Hershey has been adding salty snacks such as pretzels and popcorn to its offerings to diversify its revenue, while retailers such as Walmart have reduced their shelf space for chocolates to make room for snacks that sell better, Morgan Stanley analyst Pam Kaufman wrote.

—Janet H. Cho

***

MarketWatch Wants to Hear From you.

Some people hire a fiduciary financial manager to manage their portfolios at a percentage of the account. But what if you no longer want to pay this expense? What are some tips for finding a fee-for-service manager?

A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to [email protected].

***

—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner