Optimism about inflation and the US economy is quickly waning on Wall Street, and the early 2023 rally for stocks is fading. Markets were under pressure again on Friday after a warmer-than-expected reading for personal consumption expenditures sent rates higher and stocks lower. The S&P 500 is now only up 3% for the year. It seems investors will have to white-knuckle through a few more months of rate hikes and inflation reports before seeing prices drop further, especially on the service side where the Federal Reserve is focused. “Essentially, you have underlying demand for services that is still above ‘normal’ levels of demand, so the service category is likely to experience inflationary pressures for a little longer,” said Jeffrey Roach, chief economist. for LPL Financial. He added that while he still expects inflation to fall below 4% by the end of the year, the upcoming data report will be “choppy.” While the reversal of higher rates has not caused massive selloffs for stocks seen early last year, the idea of a “no-landing” scenario and a true rally certainly seems far away now. Another rally for the market will be hard to come by until the inflationary picture settles. “The recent repricing of interest rate expectations has put some renewed focus on valuations. … The market will wait to get a little more clarity on what the peak level of food funds will be, but we should not repeat last year’s experience,” said Angelo Kourkafas , investment strategist at Edward Jones. “At the same time, if we think that interest rates will rise to a higher point, then there is less hope for valuations to expand,” he said. Next week’s economic update brings a new round of economic indicators to see how sticky inflation is affecting consumers and businesses. Durable goods orders on Monday, consumer confidence on Tuesday and the ISM manufacturing survey on Wednesday are some of the key reports in the coming days. Unlike the consumer sector, there are some parts of the economy like housing that have been slowed significantly by the Fed’s rate hike. They could face new pressures with rates rising again. “People have to be prepared that 10-year yields are higher. I don’t know if we’re going to go back to 4.5% or 4.4%, but the whole idea of a soft landing I don’t believe is anywhere near accurate. You don’t get a rebound in one of the early cycle economic indicators, which just tells us that this is a good bear market rally,” said Andrew Smith, chief investment officer at Delos Capital Advisors. Another look at the economy will come via key earnings reports. Several major retailers report next week, including Target and Costco. Investors will be looking for signs of tightening customers at best, as well as comments on wages and supply chains. Software giant Salesforce is also scheduled to release its latest results on Wednesday. The labor market is one area that remains good for bullish investors, and its continued strength keeps hopes alive that it will stave off a recession. The next monthly jobs report isn’t out until March 10, which could help stocks hold some trading in the meantime. “We won’t see material shortages until we see cracks in the labor market,” Smith said, but he warned that a strong labor market could create a “negative feedback loop” with sticky inflation and an aggressive Fed. Monday: Earnings: Occidental Petroleum, Workday, OneOK, Heico, Li Auto, Zoom Video, BioMarin Pharmaceutical, AES Corp., Viatris, Essential Utilities, Darling Ingredients, Universal Health Services, Pinnacle West Capital 8:30 a.m. Orders last 10:00 a.m. am Pending home sales 10:30 am Dallas Fed Index 10:30 am Speech by Fed Governor Philip Jefferson Tuesday: Earnings: Target, Bank of Montreal, Scotiabank, Monster Beverage, Sempra, AutoZone, Agilent Technologies, Ross Stores, HP Inc., Verisk Analytics, HP Inc, Coupang, Rivian Automotive, First Solar, JM Smucker, Norwegian Cruise Line Holdings, AMC Entertainment 8:30 am Wholesale inventories 9:00 am FHFA Home Price index 9:00 am S & P/Case-Shiller home prices 9:45 am Chicago PMI 10:00 am Consumer confidence 10:00 am Richmond Fed index Wednesday: Earnings: Salesforce, Royal Bank of Canada, Lowe’s, Snowflake, Dollar Tree, Veeva Systems, Horizon Therapeutics, Nio, Splunk, Liberty Media , Okta 9:45 am Markit PMI Manufaktur 10:00 am Constructio n spending 10:00 am ISM Manufacturing Thursday: Earnings: Broadcom, Costco, Toronto Dominion, Anheuser-Busch, Marvell Technology, Kroger, Dell Technologies, Hormel Foods, Hewlett Packard Enterprises, Zscaler, Best Buy, Burlington Stores, Macy’s 8:30 am Jobless claims 8:30 am Unit labor costs and productivity 4:00 pm Speech by Fed Governor Christopher Waller Friday: 9:45 am Markit Services PMI 10:00 am ISM Services PMI 3:00 pm Discussion from Fed Governor Michelle Bowman