This week is full of key inflation data in the form of the Consumer Price Index (CPI) and Producer Price Index (PPI) as well as jobless claims, a slew of earnings from major financial institutions, and minutes from the March FOMC meeting will be released. All of this data may influence how the Federal Reserve makes its next monetary policy decision, giving cause for investors to watch closely, wondering if it will impact the stock market (^DJI, ^IXIC, ^GSPC).

Senior US Equity Strategist at BofA Securities Ohsung Kwon joins The Morning Brief to give insight into all of this data and the potential effect it may have on the Fed's outlook on interest rates.

In terms of policy decisions from the Fed, however, Kwon argues it may not matter how they react: "At the end of the day it's really earnings. If the Fed can cut less because the economy is still strong, and, as a bull, I would rather much see the Fed cutting less because the economy is very strong than the Fed having to cut because the economy is weakening. And I don't think it's really about when the Fed starts cutting, I think it's really about how. Whether it's proactive first cut or reactive first cut, If it's a proactive first cut meaning the Fed starts cutting for insurance reasons, that's obviously bullish for equities. But if it's a reactionary first cut the Fed having to cut due to weakening data, that's bearish."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

- We certainly are getting you geared up for what is going to be a very jam packed week here on Wall Street. Consumer price index CPI data set to be released on Wednesday. Investors are hoping for some good news on inflation for the Fed to cut rates. And also earnings season, which Josh was just talking about kicking off this week.

Starting with, we're going to be getting Delta out on Wednesday. And then we are going to be hearing from some of the bigger banks. We've got Citi, JP Morgan, Wells Fargo, BlackRock, and State Street among the names of reporting before the bell on Friday. Now, last earnings season, nearly all of the larger banks posted a loss and profit as costs to attract deposits arose.

Now, can we expect-- or what can we expect this time around? We want to bring in Ohsung Kwon. He is Bank of America Securities, a senior US equity strategist. Great to see you here, Ohsung. Let's talk about this earnings season. How much of this growth that we are anticipating? How much of that do you think has already been priced into the market at this point?

OHSUNG KWON: Yeah. And thanks for having me today. Great to be here. Yeah. So I mean, we are still pretty constructive on equities market overall. And I think it's really going to be an earnings driven market, as Josh was talking about.

Price action is one thing. But at the end of the day, we need fundamentals to really support that price action. And we think we're going to get that. Now, we are calling for 12% earnings growth for this year, followed by another 10% growth next year. So 250 on the S&P earnings for this year followed by 275.

And I think that's a great setup for equities. Companies have already cut costs. And we have been getting better than expected data, macro data over the past couple of weeks, which supports that consensus might be too low, especially this earnings season. And we're looking for another strong quarter.

- So if I hear you correctly, what we are expecting coming into this is actually a little bit lower than what we might get. I just know, last year, I follow all the analysts very closely. And your team, along with Savita Subramanian, was among the most bullish. And you were proven correct at the end of the year. What gives you this, I guess, conviction about the strength of the US economy that leads to these earnings that you're looking for to grow in such a way?

OHSUNG KWON: Yeah. And I think the macro setup overall is very favorable for equities in general. The economy is still very strong. Inflation is coming down. And the Fed is probably done hiking as well. We are probably headed to an easing cycle later this year.

And if that's the case, then earnings are reflecting higher. Earnings grew for the second straight quarter in Q4 and actually accelerated last quarter. And that started happening even without much demand recovery. And the reason why we were in an earnings recession was because, A, cost was bloated, and that's been taken care of.

Companies have cut down costs, started focusing on efficiency. We started seeing evidence of that. The other reason is because of the shift that we saw from goods to services. And that matters because for earnings, half of earnings for the S&P is good, whereas for the economy, it's only 20%.

So the shift that we saw from goods to services, that was a major headwind for earnings, and that's one of the reasons why we saw an earnings recession when GDP was still growing above trend. We're starting to see that reverse. We saw the PMI coming in above 50 for the first time in like 17 months when the services PMI missed. So if the dynamics between goods and services starts to normalize, that's good news for equities, for earnings, and fundamentals.

- Ohsung, talk to us just about when it comes to Bank of America, your team's base case right now, you have made the case, at least in the latest note here, that doesn't really matter whether or not the Fed actually cuts in terms of the movement that we could see that upside movement that we could continue to see in the markets. Why? Walk us through that thesis and why that essentially makes sense.

OHSUNG KWON: Yeah. At the end of the day, it's really earnings. And if the Fed cut less because the economy is still strong. And as a bull, I rather much see the Fed cutting less because the economy is very strong, then the Fed having to cut because the economy is weakening.

And I don't think it's really about when the Fed starts cutting. I think it's really about how. Whether it's proactive versus cut or reactive first cut, if it's a proactive first cause, meaning the stock starts cutting for insurance reasons, that's obviously bullish for equities.

But if it's a reactionary first cut, the Fed having to cut due to weakening data, that's bearish. And as a bull, I rather much the economy continues to do better and the Fed staying more or less dovish. Ohsung Kwon, we really appreciate you taking the time joining us here in Yahoo Finance's. Look forward to hopefully having you back soon. Bank of America Securities senior US equity strategist. Thanks, Ohsung.