The Wall Street bull is seen during the passage of the snowstorm on January 31, 2021 in New York City.
Eduardo MunozAlvarez | SEE press Corbis News | Getty Images
A decline in new Covid infections, along with improved economic data and stimulus hopes, could boost stocks that will thrive in an economy that will resurface next week.
Last week, expectations of a strong economic rebound helped raise interest rates.
Although the broader stock market was disorganized, the sectors that did well in recovery (financial, airline and industrial) stood out as leaders. This is known as the reflation trade.
These values gained at the expense of growth and technology, 2% less. Strategists expect the reflation trade to continue, as signs suggest the economy could make a strong return.
The S&P 500 fell 0.7% on the week to 3,906, while the Dow rose a small 0.1% to 31,494. The Nasdaq was down 1.57% on the week, to 13,874, with the fall in technology. Apple, for example, gave up 4% a week.
Next week’s big event is the testimony of Federal Reserve Chairman Jerome Powell, who on Tuesday gave his six-monthly testimony on the economy to the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
It is expected to debate rising interest rates, as well as concerns that inflation may begin to soar.
“It will have to recognize that the data is improving and that the virus situation is improving very materially,” said Mark Cabana, head of U.S. rate strategy at Bank of America. “It’s going to be hard for him to look as bad as he has been.”
But Powell is expected to continue to stress that the Fed will keep rates low for a long time and keep its policies easy to help the economy.
Improving forecasts
Last week, economists raised their first-quarter gross domestic product monitoring forecasts, driven in part by an unexpectedly sharp 5.3% jump in January retail sales.
Goldman increased first-quarter growth to 6% and Morgan Stanley said it remained at 7.5% during the first quarter. Economists linked the surprise gain in retail sales with stimulus controls sent to individuals under the latest $ 900 billion stimulus program approved by Congress in late December.
The Biden administration has proposed another $ 1.9 trillion Covid aid package. This could reach the House of Representatives next week.
“[Powell’s] I’ll stick to the script. The script is that lawmakers must continue to support the economy. It’s going to support the administration’s effort to get a big package, ”said Mark Zandi, chief economist at Moody’s Analytics.
Key data during the week
Gains remain significant. There are more than 60 companies reporting, including Home Depot, Macy’s and TJX.
Key economic reports falling next week include durable goods on Thursday, along with data on personal income and expenses on Friday
Friday’s report includes the personal consumer spending price index, which the Fed monitors. The market is looking for signs of rising inflation.
“I think the boom will start sooner than most people think,” said Ed Keon, QMA’s chief investment strategist.
He said the stronger economy is helping boost Treasury yields, with 10 years reaching a one-year high of 1.36% on Friday. Keon said the deployment of the vaccine helps prospects as well as the slow spread of the virus.
“I think people were expecting a second half boom, but I think the second quarter will be very strong as people change behavior,” he said.
“The caution when saving and not going out will go away sooner than we think,” Keon said. “Right now you might see a 10% GDP in the second or third quarter. That’s also because we’re likely to get a big stimulus package.”
He said investors underestimate the increase in economic activity that should start in March and will pick up strength in the second and third quarters as more people resume food and other activities.
“I think the world will look very different from the last twelve months. We’re still bullish. We still have overweight stocks,” Keon said.
He said a flood of money could affect the economy.
“The size of the U.S. economy last year was about $ 21 trillion,” Keon added. “Households now have excessive savings of about $ 1.5 trillion and the stimulus package is likely to reach $ 1.2 trillion and $ 1.6 trillion.”
He said the services sector should start to see a benefit that has been to raise the production side of the economy’s goods. “You’ll see an incredible boom.”
Next week’s calendar
Monday
Earnings: Dish Network, Royal Caribbean, Marathon Oil, Ingersoll-Rand, Occidental Petroleum, Transocean, Zoominfo, ONEOK, HSBC
10:00 am Leading economic indicators
Tuesday
Earnings: Home Depot, Macy’s, Intuit, Thomson Reuters, Square, Toll Brothers, Jazz Pharmaceuticals, McAfee, Medtronic, Pioneer Natural Resources, Bank of Montreal
9:00 am FHFA housing prices
9:00 am S & P / Case-Shiller house prices
10:00 a.m. Fed Chairman Jerome Powell Semiannual Economic Witness Senate Banking Committee
Wednesday
Earnings: Lowe’s, NVIDIA, Viacom, public storage, background bookings, 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 houses
10:00 a.m. Fed Chairman Powell half-yearly economic testimony to 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, American Tower, Cleveland Cliffs, Airbnb, Carvana, Door Dash
8:30 a.m., Atlanta Fed Chairman Raphael Bostic
8:30 am Unemployment claims
8:30 am Durable products
8:30 h Q4 second reading of GDP
10:00 am Pending sale of homes
10:00 h Advanced economic indicators
10:00 a.m., Fed Chairman of St. Louis, James Bullard
3 p.m., New York Fed Chairman John Williams
Friday
Earnings: Fluor, Cinemark, Draft Kings, Foot Locker, AMC Networks
8:30 am Personal income and expenses
8:30 a.m. Advanced trade
9:45 am Chicago PMI
10:00 h Consumer sentiment
Saturday
Earnings: Berkshire Hathaway