Earnings reports, Fed to test market rally in coming week

Earnings reports, Fed to test market rally in coming week


A Wall Street sign is visible near the New York Stock Exchange (NYSE) in New York City on May 4, 2021.

Brendan McDermid | Reuters

Investors will see if stocks continue their new momentum in the coming week, as major retailers including Walmart and Home Depot, reported income and housing data dominate the calendar.

The Federal Reserve can also play a role. The minutes of its latest meeting will be released on Wednesday, and after warmer-than-expected consumer and producer inflation in April, market professionals will be following it closely.

Central bank officials are also expected to comment, including Fed Vice Chairman Richard Clarida, who will speak next Monday.

Stocks have been volatile. The rally on Thursday and Friday failed to reverse the heavy losses of the week. Defensive consumer staples, financials and materials were on track for a positive week across major sectors. The worst performers were consumer discretionary, at around 3.7% for the week, and technology, which was down 2.2%.

Tech stocks were among the best performers Friday rally, up around 2.1%. Energy was the best performance, up over 3%.

“Look at it with some trepidation,” said Art Hogan, chief market strategist at National Securities. “It’s not like the things that scared us this week, like inflation, are just going away … I think the fact that we bounced back at the end of the week is constructive.” He added that he still expects the market to advance in spurts.

Fed in advance

Essentially, the Fed minutes should be a replay of the last central bank meeting. But that took place before April’s consumer price index rose 4.2% year-over-year.

This latest meeting also took place ahead of the April jobs report which showed just 266,000 payrolls, a quarter of what was expected.

“I think the Fed is ready to look at these weird data points. They think a data point is not a trend,” said Joseph Song, senior US economist at Bank of America.

But markets have focused on whether there is any data to clarify when the Fed could start talking about ending its bond purchases. It would be a precursor to slowly end the $ 120 billion monthly asset purchase program, and also a signal that it is one step closer to raising interest rates.

Hogan said when the weak employment report came out, the market’s view shifted away from the idea that the Fed could discuss reducing its bond purchases when it holds its Jackson Hole Economic Symposium at the end of the summer.

But the market returned to this view when the hot CPI report was released on Wednesday.

“We’ve seen a hot CPI, a hot PPI,” Hogan said, referring to the producer price index. “This tells us that the Fed may be behind the curve.”

The Fed has said it expects a transitory spike in inflation, but fears it is a temporary spike in the market. But Hogan said investors took comfort in the drop in iron ore and copper, down nearly 2% for the week.

Retail trade income and housing

Large retailers publish quarterly results throughout the week. Walmart and Home Depot will report on Tuesday. Target, TJX and Lowe’s publish the results on Wednesday, and BJ Wholesale and Kohl’s Thursday.

Another disappointing data point was April’s Friday retail sales, which were flat with March. But they are still at a high level. Hogan said based on the sales report, retailers should have done well.

“You’re likely to hear that the usual suspects are better performers. It used to be Walmart, Target, Home Depot, Lowe’s,” Hogan said. He said now others have joined the list, like TJX and Gap, and should do well.

In addition to income, there are data on housing. The sentiment index from the National Home Builders Association will be released on Monday and housing starts are released on Tuesday. Existing home sales will be released on Friday.

Hogan said based on the data, it could help homebuilders who fell hard last week. He noted that DR Horton and Hovnanien were both down for the week.

“Homebuilding index is down 5% for the week, even though it is up 1% [Friday]. It’s a hot industry that has a lot of implications, ”he said. What’s good for home sales is good for auto sales. It’s good for Home Depot and Lowe’s. “

Homebuilders were part of a wide spectrum of the market that rebounded on Friday.

Scott Redler, chief strategist at T3Live.com, said that at the end of the week some of the growth and tech names were trading better, like Facebook and Alphabet.

“The S&P 500 held the 50-day moving average, which is constructive,” he said.

The S&P 500 has reached about a dozen points in its 50 days, which is the average price of the last 50 close. This is often a level that serves as support, but if broken it can signal a negative trend.

The S&P 500 was down about 1.5% for the week at 4,173.85. the Nasdaq ended the week at 13,429.98, down 2.3% on the week.

“The tech sector, which has been under pressure, maintained its annual uptrend earlier in the week. Today it felt a bit better than the rest of the week,” Redler said. Friday. “That doesn’t mean you can enter everything, but you can tell traders are choosing higher quality stocks at these prices.”

Calendar for the upcoming week

Monday

Earnings: Hostess marks, Lordstown Motors, Tencent

8:30 a.m., Atlanta Fed Chairman Raphael Bostic on CNBC

8:30 am Empire Manufacturing

10:00 a.m. NAHB Index

10:25 a.m. Fed Vice President Richard Clarida at the Atlanta Fed Conference

4:00 p.m. ICT data

6:00 p.m .: Rob Kaplan, president of the Dallas Fed

Tuesday

Earnings: Walmart, Home Depot, Macy’s, Baidu, Take-Two Interactive, Trip.com, NetEase

8:30 a.m. Housing starts

11:05 a.m., Dallas Fed Chairman Rob Kaplan

Wednesday

Earnings: Target, Lowe’s, JD.Com, Cisco, Shoe carnival, TJX, Eagle materials, Analog devices, Brands L

10:00 a.m. St. Louis Fed Chairman James Bullard on economics and monetary policy

2:00 p.m. FOMC

Thursday

Earnings: BJ Wholesale, Kohl, Petco, Ralph Lauren, Materials applied, Ross stores, Deckers Outdoor, Hormel Foods, Palo Alto Networks

8:30 a.m. Initial jobless claims

8:30 a.m. Philadelphia Federal

10:00 a.m. Leading indicators

10:00 am Bullard of the Saint-Louis Fed

10:30 a.m. Kaplan of the Dallas Fed

Friday

Earnings: Deere, Foot Locker, Loop, VF Corp, Booz Allen Hamilton

9:45 a.m. PMI Markit Manufacturing

9:45 a.m. PMI Markit Services

10:00 a.m. Sales of existing homes

12:15 p.m. Kaplan from the Dallas Fed, Bostic from the Atlanta Fed and Thomas Barkin, Chairman of the Richmond Fed, at a panel

1:30 p.m. Mary Daly, President of the San Francisco Fed

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