The Wall Street bull can be seen during the snowstorm on January 31, 2021 in New York City.
Eduardo MunozAlvarez | VIEW Press | Corbis News | Getty Images
A recession of new Covid diseases, coupled with improving economic data and stimulus expectations, could spur a stock thriving in a recovering economy in the coming week.
In the past week, expectations for a strong economic recovery helped raise interest rates.
While the broader stock market was choppy, performing sectors in reversals – finance, airlines and businesses – stood out as leaders. This is called reflation trading.
These stocks acquired at the cost of growth and technology were down 2%. Strategists expect trade reflation to continue as signs suggest the economy could recover rapidly.
The S&P 500 fell 0.7% on the week to 3,906, while the Dow rose 0.1% slightly at 31,494. The Nasdaq fell 1.57% for the week, to 13,874, with the decline in tech. Apple, for example, gave up 4% on the week.
The big event next week is witnessed by Federal Reserve Chairman Jerome Powell, who will give his semi-annual testimony on the economy before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
He is expected to talk about the rise in interest rates, as well as concerns that inflation could start to pick up.
“He has to admit that the data is improving and the virus situation is improving dramatically,” said Mark Cabana, head of US rate strategy at Bank of America. “It’s going to be hard for him to feel how dovish he’s been.”
But Powell is expected to continue insisting that the Fed will keep rates low for a long time and keep its policies easy to help the economy.
Improving projections
Economists last week confirmed forecasts for first-quarter gross domestic product, driven in part by an unexpected sharp jump of 5.3% in retail sales in January.
Goldman fell first-quarter growth to 6%, while Morgan Stanley said it was tracking at 7.5% for the first quarter. Economists linked the surprise in retail sales to incentive studies sent to individuals under the last $ 900 billion incentive program agreed by Congress in late December.
Biden management has proposed another $ 1.9 trillion Covid relief package. That could come before the House of Representatives next week.
“[Powell’s] going to stick to the script. The script is that lawyers must continue to support the economy. It’s going to support the administration’s effort to get a big package through, ”said Mark Zandi, chief economist at Moody’s Analytics.
Key data for the week
Employment is still important. More than 60 companies report, including Home Depot, Macy’s and TJX.
Key economic reports falling next week include stable commodities on Thursday, along with personal income and consumption data on Friday
Friday’s report includes a personal consumption price index, which the Fed monitors. The market is watching for signs of rising inflation.
“I think success will start sooner than most people think,” said Ed Keon, QMA’s chief investment strategy.
He said the stronger economy is helping to drive Treasury yields higher, with the 10-year hit at a high of 1.36% on Friday. Keon said the spread of the vaccine helps the vision, as well as the slow spread of the virus.
“I think people were expecting an increase in the second half, but I think the second quarter will be very strong, because people are changing their behavior,” he said.
“The warning when it comes to savings and not going out, that is going to go faster than we think,” Keon said. “Right now, you may see a 10% GDP figure in the second or third quarter. That’s also because we’re likely to get a big stimulus package.”
He said investors are dismissing the rise in economic activity that should start in March and pick up steam in the second and third quarters as more people resume dinner and other activities .
“I think the world is going to look very different than it has over the last 12 months. We’re still bullish. We’re still fat stocks,” Keon said.
He said a cash flood could hit the economy.
“The size of the U.S. economy last year was about $ 21 trillion,” Keon said. “Households now have additional savings of around $ 1.5 trillion and the incentive package could be close to $ 1.2, $ 1.6 trillion.”
He said the service sector should begin to see a benefit that has been building goods making a side of the economy. “You’re going to see an incredible increase.”
Calendar ahead
Monday
Earnings: Dish Network, Royal Caribbean, Marathon Oil, Ingersoll-Rand, Occidental Petroleum, Transocean, Zoominfo, ONEOK, HSBC
10:00 am Key economic indicators
Tuesday
Earnings: Home Center, Macy’s, Intuit, Thomson Reuters, Square, Toll Brothers, Jazz Pharmaceuticals, McAfee, Medtronic, Pioneer Natural Resources, Montreal Bank
9:00 am FHFA home prices
9:00 am S&P / Case-Shiller home prices
10:00 am Fed Chairman Jerome Powell semiannual economic testimony of the Senate Banking Committee
Wednesday
Earnings: Lowe’s, NVIDIA, Viacom, Public Storage, Real Estate, TJX, Brookdale, Royal Bank of Canada, Apache, Petrobras, Pure Storage, L Brands, Casper Sleep
7:00 am Mortgage applications
10:00 am Sale of new home
10:00 am Evidence Chair Powell semi-annual economic evidence at the House Financial Services Committee
Thursday
Earnings: Salesforce.com, Norwegian Cruise Lines, Etsy, Best Buy, HP, Shake Shack, Beyond Meat, Anheuser-Busch Inbev, Dell Technologies, Virgin Galactic, Tower of America, Cleveland Cliffs, Airbnb, Carvana, Door Dash
8:30 am Atlanta Fed President Raphael Bostic
8:30 am Unemployed applications
8:30 am Stable goods
8:30 am Q4 GDP second reading
10:00 am Awaiting home sale
10:00 am Positive economic signals
10:00 am St. Louis Fed President James Bullard
3:00 pm New York President Fed John Williams
Friday
Earnings: Fluor, Cinemark, Kings Draft, Foot Locker, AMC Networks
8:30 am Personal income and consumption
8:30 am Advanced trading
9:45 am Chicago PMI
10:00 am Consumer awareness
Saturday
Protection: Berkshire Hathaway