The Wall Street bull is seen during the passing of the snowstorm on January 31, 2021 in New York City.
Eduardo MunozAlvarez | SEE press | Corbis News | fake images
A decline in new Covid infections, coupled with improving economic data and hopes for stimulus, could fuel stocks that are flourishing in a resurgent economy in the coming week.
Last week, expectations of a strong economic rebound helped boost interest rates.
While the stock market was generally choppy, the sectors that had a good rebound (financial, airlines and industrial) stood out as leaders. This is known as reflation trading.
Those stocks gained at the expense of growth and technology, down 2%. Strategists expect reflation trading to continue as signs suggest the economy could come back sharply.
The S&P 500 was down 0.7% for the week at 3,906, while the Dow was up a small 0.1% at 31,494. The Nasdaq was down 1.57% for the week, to 13,874, as technology fell. Apple, for example, lost 4% for the week.
Next week’s big event is the testimony of Federal Reserve Chairman Jerome Powell, who delivers his semi-annual testimony on the economy before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
It is expected to discuss rising interest rates, as well as concerns that inflation could start to take off.
“You’ll have to acknowledge that the data is improving and the virus situation is improving quite materially,” said Mark Cabana, head of US rate strategy at Bank of America. “It’s going to be difficult for him to sound as moderate as he has been.”
But Powell is expected to continue to emphasize that the Fed will keep rates low for a long time and keep its easy policies to help the economy.
Economists last week raised follow-up forecasts for first-quarter gross domestic product, fueled in part by an unexpectedly sharp 5.3% rise in January retail sales.
Goldman increased first-quarter growth to 6%, and Morgan Stanley said it was going to 7.5% in the first quarter. Economists linked the surprise gain in retail sales to stimulus checks sent to individuals under the latest $ 900 billion stimulus program approved by Congress in late December.
The Biden administration has proposed another $ 1.9 billion Covid aid package. That could go before the House of Representatives in the next week.
“[Powell’s] let’s stick to the script. The script is that lawmakers must continue to support the economy. He will support management’s effort to come up with a great package, “said Mark Zandi, chief economist at Moody’s Analytics.
Key data during the week
Profits are still important. There are more than 60 companies reporting, including Home Depot, Macy’s, and TJX.
Key economic reports to fall next week include durable goods on Thursday, along with personal income and spending data on Friday.
Friday’s report includes the price index for personal consumption spending, which the Fed tracks. The market is watching for signs of rising inflation.
“I think the boom will start sooner than most people think,” said Ed Keon, chief investment strategist at QMA.
He said the stronger economy is helping to drive Treasury yields higher, hitting a one-year high of 1.36% on Friday. Keon said the launch of the vaccine is helping the outlook, as is slowing the spread of the virus.
“I think people expected a boom in the second half, but I think the second quarter will be very strong as people change their behavior,” he said.
“The caution when it comes to saving and not going out will be gone sooner than we think,” Keon said. “Right now, you may see 10% of GDP in the second or third quarter. That is also due to the fact that we are likely to get a great stimulus package.”
He said investors are underestimating the surge in economic activity that should begin in March and accelerate in the second and third quarters as more people resume dining and other activities.
“I think the world will look very different than it has been in the last 12 months. We remain optimistic. We remain overweight in equities,” Keon said.
He said a flood of money could affect the economy.
“The size of the US economy last year was about $ 21 trillion,” Keon added. “Households now have excess savings of about $ 1.5 trillion and the stimulus package will probably be in the region of $ 1.2 trillion, $ 1.6 trillion.”
He said the service sector should start to see a benefit that has been lifting the goods manufacturing side of the economy. “You’re going to see an incredible boom.”
Next week’s calendar
Profits: Dish Network, Royal Caribbean, Marathon Oil, Ingersoll-Rand, Occidental Petroleum, Transocean, Zoominfo, ONEOK, HSBC
10:00 am Main economic indicators
Profits: Home Depot, Macy’s, Intuit, Thomson Reuters, Square, Toll Brothers, Jazz Pharmaceuticals, McAfee, Medtronic, Pioneer Natural Resources, Bank of Montreal
9:00 am FHFA Home Prices
9:00 am S & P / Case-Shiller Home Prices
10:00 am Fed Chairman Jerome Powell, semi-annual economic testimony Senate Banking Committee
Profits: Lowe’s, NVIDIA, Viacom, Public Storage, Booking Holdings, TJX, Brookdale, Royal Bank of Canada, Apache, Petrobras, Pure Storage, L Brands, Casper Sleep
7:00 am Mortgage applications
10:00 am New home sales
10:00 am Semiannual economic testimony from Fed Chairman Powell at the House Financial Services Committee
Profits: Salesforce.com, Norwegian Cruise Lines, Etsy, Best Buy, HP, Shake Shack, Beyond Meat, Anheuser-Busch Inbev, Dell Technologies, Virgin Galactic, American Tower, Cleveland Cliffs, Airbnb, Carvana, Door Dash
8:30 am Atlanta Fed President Raphael Bostic
8:30 am Unemployment applications
8:30 am Durable goods
8:30 am Second reading of GDP for the fourth quarter
10:00 am Pending home sales
10:00 am Advanced economic indicators
10:00 am James Bullard, president of the St. Louis Fed
3:00 pm New York Fed President John Williams
Profits: Fluor, Cinemark, Draft Kings, Foot Locker, AMC Networks
8:30 am Personal income and expenses
8:30 am Advanced trading
9:45 am Chicago PMI
10:00 am Consumer sentiment
Profits: Berkshire Hathaway