Traders on the floor of the New York Stock Exchange
Source: New York Stock Exchange
The war pull between equities and rising bond yields could set the tone for next week, especially if positive economic data continues to boost Treasury yields.
Friday’s February employment report is the highlight of the week’s data and a major current review of the virus’s impact on the economy, after only adding 49,000 jobs in January. By February, the economist expects 218,000 jobs to be added and the unemployment rate is expected to remain at 6.3%, according to Dow Jones.
Fed speakers are also a major focus of markets, after the rapid rise in bond yields this past week felt like a runaway train. Fed Chairman Jerome Powell is the most important speaker when introducing one Wall Street Journal Thursday at the summit.
“If you want to stop this rate hike, you do have to say something. But you risk sounding uncomfortable. The louder it is, the higher the rates will be,” said Peter Boockvar, investment director at Bleakley Advisory Group. When the Fed describes itself as obvious, it means it maintains an easy policy, such as keeping interest rates low.
Some Fed observers doubt the central bank will comment on rising yields more than Powell did last week when he said the move was the result of a strengthened economy. But bond professionals say Powell could bolster that Fed policy will remain easy for a long time to come.
The rapid expansion of interest rates this month surprised investors. The benchmark 10-year yield, which influences mortgages and other loans, stood at 1.46% on Friday afternoon, about 15 basis points [0.15%] above the level I had just a week before. Following a sharp rise on Thursday, the ten-year yield was traded on both sides at 1.50%, which is the consensus view of the location of yields at the end of the year and not at the beginning.
The rapid rise in yields, which rise as prices fall, scared investors into stocks last week, evident in the hectic trading and big sales Thursday. The Nasdaq fell nearly 4.9% on the week, as technology stocks were hardest hit, but the S&P 500 fell about 2.4% during the week.
“I think it’s probably going to be a tug-of-war in the short term,” said Sam Stovall, CFRA’s chief investment strategist. The stocks have been reflecting optimism about the economy and are now joined by bonds.
“People forget the reason we are seeing very high year-on-year increases [economic] indicators. It’s just that we’re getting into the depths of the recession … and now we’re on a lot of steps to get back to pre-pandemic levels, “he said.
Stocks, on average, performed poorly in February, but this year they have been higher, thanks to the improving economy, the deployment of vaccines and the prospect of a large stimulus package. The $ 1.9 trillion Biden administration stimulus package is due to go to a Senate vote next week.
The expected economic boost from the stimulus has also boosted yields further, and has also raised concerns about inflation.
“March is actually a pretty good month for the market. It’s the fourth best in terms of average price change. It’s the fourth best in advance frequency, but it’s the fourth lowest in terms of volatility,” he said. Stovall.
The average gain in March since World War II was 1.1%. But in 14 years, 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 2.6%, while the Nasdaq fell 0.9%. The Dow was up 3.2% and the Russell 2000 was up 6.1%.
Stovall, who was expecting a market sale, said the technology and consumer were discretionary among last week’s worst, when the shares were sold, but they had also earned more. These sectors would also sell more if there were any setbacks.
“It could be sold thanks to the rotation of technology stocks facing smaller and less important market value issues,” he said.
Jim Caron, head of global macro strategy at Morgan Stanley Investment Management, said one problem for the market was that the rate movement surprised investors. “It was really the speed at which it happened that worried everyone,” he said. say, noting that the move this past week was distinguished by the fact that it was also on shorter-term values, such as the five-year note.
“Basically the market was testing the Fed’s resolution to keep rates low for a long time,” Caron said. “They need to make sure the markets understand that they are serious about this course to make sure we get a full and robust recovery, but they also don’t want to be so impoverished that we suddenly look at all sorts of expectations. ‘inflation … and rates go up just that. “
“They want to see an increase in rates for a good reason,” he said
Other data for next week includes ISM manufacturing data from Monday’s and Thursday’s unemployment claims, important after an unexpected drop in last week’s data.
The earnings season is over, but retailers will report, with Target, Kohl’s and Nordstrom on Tuesday, and Costco and BJ’s Warehouse on Thursday.
The annual CERAWeek energy conference takes place all week and includes presentations from industry officials from Saudi Aramco, Chevron, ConocoPhillips, Total and others. The conference has been a key pillar for the oil industry for more than three decades.
Next week’s calendar
Monday
Earnings: Zoom Video, MBIA, Ambac Financial, Hilton Grand Vacations, Inovio Pharma, Perrigo, Boingo Wireless, Tegna
9:00 a.m., New York Fed Chairman John Williams
9:05 a.m. Fed Governor Lael Brainard
9:45 PMI manufacturing
10:00 h ISM Manufacturing
10:00 h Expenditure on works
2:00 pm Atlanta Fed Chairman Raphael Bostic
Tuesday
Sale of vehicles
Earnings: Target, Box, Hewlett Packard Enterprise, Nordstrom, Ross Stores, International Game Technologies, KoZ’s AutoZone, Abercrombie and Fitch, Hovnanian
1:00 pm Lael Brainard, Fed Governor
2 p.m., San Francisco Fed Chair Mary Daly
Wednesday
Earnings: Wendys, Dollar Tree, Brown-Forman, Vivendi, Splunk, Marvell Tech, Snowflake, Vroom, American Eagle Outfitters
8:15 am ADP occupation
9:45 h PMI of services
10:00 a.m. Philadelphia Fed Chairman Patrick Harker
10:00 am ISM Services
12:00 pm Atlanta Fed Chairman Raphael Bostic
1:00 pm Charles Evans, president of the Chicago Fed
2:00 pm Beige book
Thursday
Earnings: Broadcom, Costco, BJ’s Wholesale, Gap, Burlington Stores, Ciena, Michael’s Cos, IMAX, Kroger, Cooper Cos
8:30 am Initial claims for unemployment
8:30 h Productivity and costs
10:00 h Factory orders
12:05 pm Fed Chairman Jerome Powell
Friday
Earnings: Great lots
8:30 h Occupation
8:30 am International trade
15:00 Consumer credit
3:00 pm Bostic of the Atlanta Fed