New York (CNN) Persistent inflation remains the Federal Reserve’s No. 1 concern, even as the banking sector remains on edge after two major bank failures last month. This week’s consumer price index, to be announced at 8:30 a.m. ET on Wednesday, could determine whether the central bank raises rates again in May.

That means it will also weigh on markets, especially now that Wall Street’s focus has shifted from the financial system to the economy.

“Inflation is no less relevant than it has been in the past two years,” Bankrate chief financial analyst Greg McBride wrote. “Consumer Price Index Remains Most-Watched Monthly Economic Report.”

So what are they expecting?

What is happening: Core inflation levels have declined for five consecutive months on an annualized basis, according to CPI readings, but they still remain near historic highs at 6% — well above the Federal Reserve’s 2% target.

Last month’s reading showed price growth between January and February, which “doesn’t inspire confidence that 2% is just around the corner,” McBride said.

For March, economists forecast a 0.4% monthly rise in CPI, which would match the September-February average and keep that year-over-year average higher.

So what will it take to please the Fed and investors?

“To feel good about where inflation is headed, we need to see more than moderation in both the headline and core inflation rates,” said McBride. “We need to see moderation in price pressures across a wide range of household budget staples: shelter, food, electricity, motor vehicle insurance, clothing, and household furnishings and activities.”

But “resiliently improving prices make another Fed rate hike likely in May,” said Greg Basuk, CEO of AXS Investments. That’s despite a sluggish economy “made even heavier by the collapse of the banking system,” he added.

What this means for the market: Between inflation data and the start of first-quarter corporate earnings season (the three largest U.S. banks, JPMorgan Chase, Wells Fargo and Citigroup report this Friday), this week is set up for higher stock volatility, said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. .

“Unsteady inflation, rising interest rates and uncertainty over the pace of earnings growth in 2023 remain headwinds for equity price advances. Each will be in focus this week,” he said.

Retail investors are buying bank shares

TD Ameritrade released its March Investor Movement Index on Monday, which tracks what retail investors are doing.

The report showed that retail traders continued to be net buyers of equities in March. That means Main Street traders, not big financial institutions, are buying most new stocks in the US.

The growing power of retail investors — driven by stimulus cash, easier access to trading platforms and more market education, among other things — has been an ongoing trend since the start of the pandemic. Lately, large companies have started changing their investor relations strategies to become more retail investor friendly. Now even ‘smart money’ traders are using Reddit for stock tips.

So where are they investing? The strongest buying interest is in the financial sector, found TD Ameritrade. This comes despite macroeconomic catalysts such as the collapse of Silicon Valley Bank in March and the emergency sale of Credit Suisse.

“March was full of surprises, but overall sentiment among TD Ameritrade retail clients was neutral when it comes to market exposure,” said Lauren Gavican-Kerr, managing director of TD Ameritrade. “For the second month in a row, our clients were net buyers of equities, apparently eyeing opportunities to buy lows in the financial sector and sell highs in information technology.”

The five most popular stocks to buy, according to TD Ameritrade, are Tesla, Rivian, Ford Motors, Amazon and troubled First Republic Bank.

Retail investors, meanwhile, were net sellers of Meta, NVIDIA, Advanced Micro Devices, Intel and Apple.

NY Fed Says Short-Term Inflation Expectations Raised

Inflation expectations rose over the short-term and medium-term horizons, according to The Federal Reserve Bank of New York’s March Survey of Consumer Expectations released on Monday.

Inflation expectations for the year ahead rose half a percentage point to 4.7%, the survey found. This marks the first increase since October 2022.

The survey, which asks about 1,300 U.S. household heads each month, also found that respondents were more pessimistic about the U.S. labor market than in previous months. Expectations for unemployment — or the likelihood that the U.S. jobless rate will be higher a year from now — rose 1.3 percentage points to 40.7%, the New York Fed found.

The recent banking crisis and credit crunch also seem to worry US households. The Fed reported that “perceptions of access to credit worsened in March compared with a year ago.” Credit is harder to come by than a year ago as household shares hit an all-time high.

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