This week is set to be a relatively quiet one for investors in terms of economic data releases and earnings reports. Officials from the Federal Reserve will also enter their "blackout period" ahead of their June policy-setting meeting.

Still, new data on consumer price inflation will be of interest, since market participants have been looking for signs that the post-pandemic recovery is generating a surge in prices amid supply chain and labor shortages and booming demand. 

The Labor Department's May consumer price index (CPI) on Thursday will show the latest on these price trends for the average American. Consensus economists are looking for the index to register a 0.4% month-on-month increase after a 0.8% surge in April. And over last year, the headline CPI is expected to jump 4.7%, or by the most since 2008. 

The core CPI, or more closely watched measure excluding volatile food and energy prices, is expected to rise 0.4% month-on-month and 3.4% year-on-year. The latter would mark the greatest jump in nearly three decades. 

"Thursday’s CPI data will be scrutinized after last month’s report sent up a flare on higher inflation," David Donabedian, chief investment officer of CIBC Private Wealth, wrote in an email on Friday. "While the consensus is for a 0.4% monthly increase, the risk is probably to the upside as bottlenecks and other supply constraints push costs higher."

Last month's greater-than-expected surge in the April consumer price index contributed to a 2% selloff in the S&P 500, with concerns over fast-rising and persistent inflation threatening to dampen the growth potential of longer-duration stocks especially. Market participants have also been monitoring inflation data with an eye to its implications for monetary policy, with the Federal Reserve looking for inflation to average above 2% for a period of time before rolling back some of its crisis-era support. 

Story continuesWASHINGTON, DC – SEPTEMBER 24: Federal Reserve Board Chairman Jerome Powell testifies during a Senate Banking Committee hearing on Capitol Hill on September 24, 2020 in Washington, DC. Powell and U.S. Treasury Secretary Steven Mnuchin are testifying about the CARES Act and the economic effects of the coronavirus pandemic. (Photo by Drew Angerer/Getty Images)

Most Fed officials and outside economists have suggested the jump in inflation reflected in the data for this spring will be transitory, largely reflecting the result of base effects off last year's pandemic-depressed levels. However, consumers have also begun to increasingly expect higher inflation in the future, with this shift in psychology also contributing in part to the Fed's decision-making. In one example, the University of Michigan's final May consumer sentiment index dipped compared to April in part due to concerns that higher inflation would weaken spending power. 

"Shifting policy language and a small rate increase could douse inflationary psychology; it would be no surprise to consumers, as two-thirds already expect higher interest rates in the year ahead," Richard Curtin, chief economist for the University of Michigan's Surveys of Consumers, said in a press statement at the time.

Still, inflation and price stability represents just one prong of the Federal Reserve's dual mandate, with the other being achieving maximum employment. To that end, Friday's May jobs report suggested the economy remained a ways off from the Fed's goals, with U.S. employers adding back just 559,000 payrolls versus the 675,000 expected and leaving the economy still 7.6 million jobs short of pre-pandemic levels. 

"The inflation narrative is secondary for the taper discussion, but it is still a consideration. With inflation pressures rising, the risk assessment has likely shifted a bit," Michelle Meyer, Bank of America U.S. economist, wrote in a note on Friday. "The concern for Fed officials is less about strong core CPI prints and more about the drift higher in inflation expectations coupled with signs of a wage-price push. This can make the temporary gains in inflation more persistent."

GameStop earnings 

Some fundamental news will be coming out this week for investors in GameStop (GME), one of the original names to be swept up in the "meme stock" frenzy at the beginning of this year.

GameStop is set to report fiscal first-quarter results Wednesday after market close, offering an update on the company's business as retail investor interest in the stock remains heightened. 

Consensus analysts expect GameStop will post adjusted losses of 59 cents per share for the three months ended in April, with this loss narrowing from the $1.61 per share reported in the same three months of last year. Revenue is expected to grow 14% to $1.17 billion.

Investors on the Reddit forum r/wallstreetbets pushed up shares of GameStop initially in January, flocking en masse to the heavily shorted stock to force short-sellers to cover their positions and push the stock's price even higher. Shares of GameStop have rallied by more than 1,200% for the year-to-date through Friday's close. 

UKRAINE – 2021/02/05: In this photo illustration a GameStop logo is seen on a mobile phone screen in front of Reddit logo. (Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)

According to data from S3 Partners' Ihor Dusaniwsky, short interest in GameStop totaled $2.99 billion as of Friday's close, with 11.58 million shares shorted for a 20.3% short percent of float. Short sellers in GameStop were down by $294 million last week, he added. 

But in recent weeks, AMC Entertainment (AMC) — another heavily shorted stock — eclipsed GameStop in terms of online interest and in share price appreciation. Shares of AMC have risen by more than 400% over the past one month, compared to a 56% increase in shares of GameStop. And AMC's market capitalization eclipsed that of GameStop last week, with the former's market value jumping above $30 billion. 

The vast majority of the moves in the meme stocks were driven by social media popularity as opposed to traditional measures of stock valuation such as earnings and expected future cash flows. However, some have asserted that there is a fundamental argument to be made for investing in shares of AMC and GameStop, with the consumer-facing, brick-and-mortar businesses benefiting from the same "reopening trade" rotation that has lifted airline, cruise line, leisure stocks and retailers.

Still, most Wall Street analysts remain on the sidelines. Three analysts gave GameStop's shares a sell recommendation and two offered a hold, according to Bloomberg data last week. Likewise, AMC garnered four Sell ratings and five Holds. No analysts rated either stock as a Buy, with the vast majority of analysts suggesting the stocks' prices had outrun the underlying value of the businesses. And last week, major banks including Bank of America, Citigroup and Jefferies tightened rules over which clients could participate in short selling of the meme stocks, in an attempt to limit exposure to the extreme volatility these securities have witnessed recently, Bloomberg reported. 

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But given the lasting explosion in meme stocks this year, many have conceded that social media-driven trading represents a paradigm shift in the market.

“This is no longer our grandparents’, or for that matter, our parents' stock market,” Zephyr Market Strategist Ryan Nauman told Yahoo Finance. “Now, investment professionals need to start focusing more on looking at alternative data sets, rethinking their investment thesis to consider this growing cohort of retail investors.”

Others suggested the heightened speculative trading among retail investors may begin to dwindle once more investors are pulled back into workplaces in person and time at home for trading becomes scarcer.

"Participation of the retail investor in U.S. equities has very, very closely followed inversely the COVID timeline. So one of my favorite charts is looking at an Apple mobility index for the U.S., you invert it, and you overlay whatever your favorite measure of retail participation is … and there is a very striking correlation," Binky Chadha, Deustche Bank chief global strategist, told Yahoo Finance on Thursday. "So I would argue that the participation is following this … and the thesis is that as markets reopen, retail participation is going to come down."

"We tend to think of it as a flash in the pan as opposed to a change in the trend," he concluded.

Economic Calendar

  • Monday: Consumer credit ($20.000 billion expected, $25.841 billion in March)

  • Tuesday: NFIB Small Business Optimism, May (100.5 expected, 99.8 in April); Trade balance, April (-$69.0 billion expected, -$74.4 billion in March); JOLTS Job Openings, April (8.123 million in March) 

  • Wednesday: MBA Mortgage Applications, week ended June 4 (-4.0% during prior week); Wholesale inventories, month-over-month, April final (0.8% expected, 0.8% in prior print)

  • Thursday: Consumer price index, month-over-month, May (0.4% expected, 0.8% in April); Consumer price index excluding food and energy, month-over-month, May (0.4% expected, 0.9% in April); Consumer price index, year-over-year, May (4.7% expected, 4.2% in April); Consumer price index excluding food and energy, year-over-year, May (3.4% expected, 3.0% in April); Initial jobless claims, week ended June 5 (372,000 expected, 385,000 during prior week); Continuing claims, week ended May 29 (3.771 million during prior week); Household change in net worth, Q1 ($6.93 trillion in Q4); Monthly budget statement, May (-$225.6 billion in April) 

  • Friday: University of Michigan sentiment, June preliminary (84.0 expected, 82.9 in May)

Earnings Calendar

  • Monday: Coupa Software (COUP), StitchFix (SFIX) after market close

  • Tuesday: N/A 

  • Wednesday: RH (RH), GameStop (GME) after market close

  • Thursday: FuelCell Energy (FCEL) before market open; Chewy (CHWY), Dave & Buster's Entertainment (PLAY) after market close

  • Friday: N/A 

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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