Traders on the floor of the New York Stock Exchange
Source: New York stock exchange
Covid-19 aid package is on track for final conference approval next week – and it could be a two-sided sword for markets.
Legislation should be optimistic about the potential boost it could bring to the stock market and the economy, but there could also be concern about the potential impact of a major historical stimulus package on inflation and rates. smooth.
Stocks were mixed last week, with the Dow and S&P 500 higher, but the Nasdaq was dragged lower with technical names aware of a flat rate. The Treasury’s 10-year benchmark yield has continued to push higher, recalling its recent high of 1.61% on Friday, before trading at 1.54 % in late trade. Yield moves against price.
Perhaps one wild card for stocks as flat rates wears around the upcoming Treasury ropes.
There is a $ 38 billion 10-year auction on Wednesday and a $ 24 billion 30-year bond auction on Thursday.
Traders are keeping a close eye on them, after a weak 7-year Finance note auction in February pushed rates higher, even for the 10-year.
“We’re a little more cautious about them, just because of what we’ve seen in the 7-year and a bit of Japanese sales pressure,” said Ben Jeffery, a strategist on BMO Capital Markets ’U.S. rates strategy team.
He said Japanese institutions could be less interested in participating before the end of their fiscal year on March 31.
Stimulus coming
The Senate was expected to approve its version of the $ 1.9 trillion stimulus package and send it to the House for a vote during the week. Furthermore, the market is monitoring key inflation reports with Wednesday’s expected consumer price index and producer price index, scheduled for Friday.
“I think the markets will be keeping a close eye on the progress of the stimulus package,” said Michael Arone, chief investment strategist at State Street Global Advisors. “I think they’ll continue to watch the Treasury’s 10-year move and we’re going to get CPI data. That’s going to inform those trends.”
It expects stimulus to remain a factor that could drive markets.
Inflation has been a concern for markets, as rising inflation could crush margins and pollute employment power. For bond investors, it would erode value and make lower value interest payments.
“As long as an increase in Treasury yield matches the inflation pick-up, I think the market will be able to handle that. I think the challenge is when yield getting particularly above inflation … I like to see them closely, “said Arone.
He said the market is worried that the next stimulus package could overtake the economy and create inflation, especially as it comes on the heels of the package agreed in December.
“I think it lends itself to the conversation, ‘do you need another $ 1.9 trillion?’ Arone said.” We’re going to pour more gas on the fire, and with the $ 1.9 trillion this is what the market is all about. “
Consumer inflation is expected to remain somewhat quiet in February, following the year-over-year 1.4% rise in core CPI in January. But the rate of inflation is likely to pick up particularly in March and April, as comparisons to last year, when the economy closed, are likely to look staggering.
Choppy to follow
Strategists expect the transition between interest rates and stocks to continue.
On Friday, rates were higher following a strong jobs report in February and stocks were also higher. The economy added 379,000 jobs in February, about 160,000 more than expected.
“I don’t think 1.5%, 1.6% over the 10-year period is extremely difficult for the market,” said Liz Ann Sonders, Charles Schwab’s chief investment strategy. She said the pace of movement was difficult.
The shift out of technology and growth to more cycling names in the finance, energy and business sectors has continued in the past week.
Energy rose by more than 10% with oil prices, near a two-year high. Financials saw the next strongest move, gaining 4.3% for the week.
“I think we’re in a choppy consolidation phase,” Sonders said.
“You see real historical divergences between what energy and finance are doing recently against tech and consumer choice,” she said.
Sonders said that even though the consolidation phase is nearing completion, that suggests there could be more losses for some frothy names. “The good news here is that I think it’s becoming a better environment for active stock breeders,” she said.
The Nasdaq Composite was down more than 10%, as was Thursday’s February 12 high. But on Friday, the index turned around, gaining around 1.6%. That’s a positive sign for the market, especially since it happened as rates moved higher.
The S&P 500 was up 0.8% for the week, while the Dow was up 1.8%. The Nasdaq, meanwhile, was down 2%.
“I think ultimately the higher quality segments that have been hit in technology and communications may need to see a revaluation value,” Sonders said. -bubbles in the market, and they may have to suffer more downside. “
She said investors may want to change the allocation of their holdings on a regular basis rather than waiting for changes around the calendar.
“If you get a three-week, four-five-day promotion in a particular region, bring back some,” Sonders said, nothing against what most people do.
Calendar ahead
Monday
Earnings: Stitch Fix, Casey General Store
10: their wholesale investments
Tuesday
Earnings: H&R Block, Navistar, Thor Industries, Dick Sport Goods
6:00 am NFIB small business survey
1:00 pm 3-year auction $ 58 billion
Wednesday
Earnings: Campbell Soup, Oracle, Vera Bradley, Tupperware, United Natural Foods, Adidas, Cloudera, Bumble, Fossil, Loan Club, Express, AMC Entertainment
7:00 am Mortgage applications
8:30 CPI
1:00 pm $ 38 billion 10-year auction auction
2:00 pm Federal budget
Thursday
Earnings: Ulta Beauty, Vail Resorts, DocuSign, Poshmark, Gogo, Zumiez, JD.com, WPP, Party City
8:30 am Unemployed applications
10:00 am JOLTs
1:00 pm 30-year bond auction $ 24 billion
Friday
Protection: Bucall
8:30 PPI
10:00 am Quarterly Services Review
10:00 am Consumer awareness