Traders on the floor of the New York Stock Exchange
Source: New York stock exchange
The tug-of-war between stocks and bond yields could rise in tone next week, especially if positive economic data continues to push Treasury yields higher.
Friday’s earnings report in February is the best of the week’s data and an important routine look at the impact of the virus on the economy, having added just 49,000 jobs in January. For February, an economist expects to add 218,000 jobs, and the unemployment rate should remain at 6.3%, according to Dow Jones.
Feeder speakers are also a key focus in the markets, following last week’s rapid rise in bond yields that felt like a train was fleeing. Fed Chairman Jerome Powell is the keynote speaker, when he appears at a Iris Wall Street peak Thursday.
“If he wants to stop this rise in rates, he has to say something. But there is a risk that it will be hawkish. The more it sounds, the higher the rates will be,” he said. Peter Boockvar, chief investment officer at Bleakley Advisory Group. When the Fed is defined as dovish, it means maintaining an easy policy, such as keeping interest rates at low levels.
Some Fed observers cast doubt on whether the central bank is commenting on the rise in yields more than Powell did last week when he said the move was due to the economy which strengthened. But bond pros say Powell could confirm Fed policy will remain easy for some time to come.
Investors were surprised by the rapid run in interest rates this month. The 10-year benchmark yield, which will affect mortgages and other loans, was at 1.46% on Friday, around 15 basis points [0.15%] above the level it was at just a week earlier. After a big rise on Thursday, the 10-year yield traded on both sides of 1.50%, which is the consensus view on where the year-end yield would be, not the beginning.
The rapid upward movement in yields, which will rise when prices fall, alarmed stock investors in the past week, seen in choppy trading and big sales on Thursday. The Nasdaq fell nearly 4% for the week, with tech shares hitting the hardest, but the S&P 500 was down about 1.3% for the week.
“I think it’s probably going to be a short-term war draw,” said Sam Stovall, CFRA’s chief investment strategy. Stocks have been showing optimism about the economy, and now bonds are joining them.
“People forget why we are looking at a really high year-on-year increase [economic] signals. We were just getting into the depths of the recession … and we are now in many stages just getting back above pre – pandemic levels, “he said.
Stocks on average did not fare well in February, but this year were driven by a booming economy, the spread of the vaccine and the prospect of a major stimulus package. Biden administration’s $ 1.9 trillion incentive package should go to a vote next week.
The expected economic upturn from stimulus has also led to higher output, and has also raised concerns about inflation.
“March is a very good month for the market. It is the fourth best in terms of average price change. It is the fourth best in terms of frequency of progress, but this is the fourth lowest level of variability, “Stovall said.
The average gain in March since World War II was 1.1%. But in the 14 years, therefore, when stocks were lower in January but higher in February, the S&P rose an average of 1.9% in March.
In February, the S&P gained 3.4%, while the Nasdaq went down with a 1.6% gain. The Dow rose 3.9%, while the Russell 2000 rose 6.8%.
Stovall, which has been forecasting market sales, said technology and consumer choice were among the worst last week, when stocks were sold, but they were also on the decline. get maximum benefit. It is likely that these shares would be sold more in another withdrawal.
“It could be driven by circulation out of expensive tech stocks into the smaller and smaller market driving value issues,” he said.
Jim Caron, head of global macro strategy at Morgan Stanley Investment Management, said one issue for the market was that investors were surprised by the rate hike “It was really the pace at which it happened. worrying everyone, “he said, noting that last week ‘s move was marked by the fact that it was also in shorter securities, such as the 5 – year note.
“Basically the market was testing the Fed’s intention to keep rates low for a long time,” Caron said. “They need to make sure that the markets understand that they are really on this course to ensure that we get a full recovery, but also that they do not want to be so depressing and sudden that we price in all sorts of inflation expectations … and rates will go up just then. “
“They want to see an increase in rates for a good cause,” he said
Other data in the coming week includes ISM manufacturing data of jobless claims Monday and Thursday, important after an unexpected decline in last week’s data.
Earnings season is coming to an end, but sellers report, with Target, Kohl’s and Nordstrom on Tuesday, and Costco and BJ’s Warehouse on Thursday.
CERAWeek’s annual energy conference runs throughout the week, and includes presentations from industry officials from Saudi Aramco, Chevron, ConocoPhillips, Total and others. The conference has been a key driver of the oil industry for more than three decades.
Calendar ahead
Monday
Earnings: Video Zoom, MBIA, Ambac Financial, Hilton Grand Vacations, Inovio Pharma, Perrigo, Boingo Wireless, Tegna
9:00 am New York President Fed John Williams
9:05 am Governor Fed Lael Brainard
9:45 am PMI manufacturing
10:00 am ISM
10:00 am Construction cost
2:00 pm Atlanta President Fed Raphael Bostic
Tuesday
Vehicle sales
Earnings: Target, Boxing, Hewlett Packard Campaign, Nordstrom, Ross Stores, International Game Technologies, Kohl’s AutoZone, Abercrombie and Fitch, Hovnanian
1:00 pm Governor Fed Lael Brainard
2:00 pm San Francisco Fed President Mary Daly
Wednesday
Earnings: Wendys, Dollar Tree, Brown-Forman, Vivendi, Splunk, Marvell Tech, Snowflake, Vroom, American Eagle Outfitters
8:15m ADP earnings
9:45 am PMI Services
10:00 am Philadelphia President Fed Patrick Harker
10:00 am ISM services
12:00 pm Atlanta President Fed Raphael Bostic
1:00 pm Chicago Fed President Charles Evans
2:00 pm Beige Book
Thursday
Earnings: Broadcom, Costco, BJ’s Wholesale, Burlington Stores, Ciena, Michael’s Cos, IMAX, Kroger, Cooper Cos
8:30 am Unemployed applications in the first instance
8:30 am Productivity and costs
10:00 am Factory orders
12:05 pm Fed Chairman Jerome Powell
Friday
Earnings: a lot of
8:30 am Protection
8:30 am International trade
3:00 pm Consumer Credit
3:00 pm Post Fed Fed