Ahead of Market: 10 things that will decide stock market action on Friday

Global Markets Set the Tone

Indian benchmark indices Sensex and Nifty showed a strong rebound on Thursday, climbing sharply from intraday lows thanks to broad-based buying across most sectors. The Sensex surged nearly 900 points from its trough, ending the day up over 600 points, while the Nifty approached 25,650. This recovery came amid positive market breadth, with far more advancing shares than decliners. Such momentum from Asian peers, including mixed signals from Hong Kong and other Asia-Pacific exchanges, could spill over into Friday's opening bell. European stocks also gained ground, lifted by luxury sector performers, providing another layer of optimism for global traders.

Across the Atlantic, U.S. indices like the S&P 500, Dow Jones, and Nasdaq posted solid gains on Thursday, with the Dow jumping over 1,200 points. Year-to-date, major averages reflect resilience despite pockets of volatility, particularly in tech-heavy Nasdaq. These positive closes in Wall Street will likely influence sentiment, as investors gauge whether the rally can sustain amid upcoming data releases. Asian markets' lower close on Friday morning adds a note of caution, but overall, global indices point to a potentially steady start.

Inflation Data and Fed Watch Take Center Stage

All eyes will be on key U.S. inflation figures, including the PCE index—the Federal Reserve's favored gauge—along with advance fourth-quarter GDP numbers, both due later today. These releases come at a pivotal time, as recent Fed minutes revealed limited enthusiasm for immediate rate cuts, with policymakers citing a robust jobs market and lingering inflationary pressures. Markets anticipate the Fed holding rates steady until at least June, but softer-than-expected data could spark fresh bets on easing. Conversely, hotter inflation readings might temper those hopes, pushing bond yields higher and weighing on equities.

Debates around inflation risks are heating up, with some experts warning of a potential surge above 4% by year-end due to factors like tariffs, tighter labor markets, looser fiscal policy, and easy financial conditions. Counterarguments highlight anchored inflation expectations and restrictive interest rates slowing sectors like housing and small business lending. Treasury yields, meanwhile, have stabilized after recent rises tied to oil price concerns and safe-haven flows.

In our view, however, this optimism is premature. We think it is more likely that inflation will surprise to the upside—potentially exceeding 4 percent by the end of 2026, as lagged tariff pass-through, tightening labor supply, looser fiscal policy, and accommodative financial conditions interact with fragile household expectations.

Geopolitics, Earnings, and Sector Buzz in Focus

Geopolitical tensions, particularly escalating U.S.-Iran frictions, are fueling oil price gains of over 5% this week, which could stoke inflation fears and boost energy stocks while pressuring others. The U.S. dollar's strength, hitting multi-week highs amid safe-haven demand and solid economic signals, adds another layer of complexity for multinational firms. Private credit market jitters, including redemption halts in retail-focused funds, signal potential liquidity risks that might spill into broader sentiment.

Corporate earnings remain a wildcard, with results from giants like Coca-Cola, Cisco Systems, and McDonald's wrapping up the quarter. Strong reports could lift consumer and tech sectors, while misses might amplify volatility. In India, defence stocks rallied amid global conflicts, and pharma names like Novartis India soared on deal news—trends worth watching for continuity. Sector rotation from IT laggards to banks, metals, and FMCG in recent sessions suggests buyers hunting value, a pattern that could persist if global risks ease. Currency moves, budget surpluses like the U.K.'s record January figure, and valuation gaps between growth and value stocks will also shape flows.

Putting it all together, Friday's market action hinges on how these threads intertwine: a data-driven Fed outlook, steady global handoffs, oil-fueled inflation worries, and earnings momentum. Traders will parse every headline for clues on rate paths and economic health, balancing optimism from recent rallies against fresh risks. Broad participation and positive breadth could extend gains, but any inflation surprise or geopolitical flare-up might trigger pullbacks. Staying nimble amid these 10 pivotal factors—global cues, inflation prints, Fed signals, oil prices, dollar strength, earnings beats, sector rotations, private credit woes, geopolitical alerts, and valuation dynamics—will be key for navigating the session.

In summary, Friday's stock market will be swayed by inflation data, global index trends, Fed policy hints, oil and currency fluctuations, corporate results, and external risks, setting the stage for either continued recovery or renewed caution.