A man wearing a protective mask walks down Wall Street No. 14 in New York’s financial district on November 19, 2020.
Shannon Stapleton | Reuters
The earnings reporting season starts next week and is expected to be a positive catalyst that can continue to send higher stocks for now.
The week is also full of Federal Reserve speakers and important data, including an early reading on inflation on Tuesday, when the consumer price index is released. Fed Chairman Jerome Powell begins another busy week with Fed appearances with a Sunday evening interview at “60 Minutes.”
Powell, in comments this past week, went on to stress that the Fed will keep its policies easy for a long time and that any appearance of inflation should be temporary. But warmer-than-expected production price inflation data on Friday has made the release of the consumer price index on Tuesday more important. The PPI gained 1%, double the expected increase.
Kevin Cummins, U.S. economist at NatWest Markets, said he expects the core CPI to rise 0.2% in March, or 1.5% year-on-year, but overall inflation is expected to reach 0.5% or 2.5% year-on-year. Cummins said March is the start of a period in which inflation could look higher, just by comparison to last year’s low levels when the economy closed.
“I think the Fed has already made progress,” Cummins said. He said he expects the CPI to peak at 3.6% in May, but then calm down over the summer.
The other key information next week is the March retail sales report, which Cummins said could show a 10% gain.
Cummins said March sales should boost with $ 1,400 stimulus checks sent to individuals, which began reaching bank accounts in mid-March. More economy has also been opened up, as more people are vaccinated.
“The end of the month has to be very strong,” he said. “If we look at car sales, this was the highest level in four years. It looks like restaurants are getting busier, with outside seats.”
Earnings season
But the profit season may be the reality for the economy.
“It’s not what they report,” said James Paulsen, chief investment strategist at Leuthold Group. “For the first time, we’re going to hear more and more companies really commenting on the future. Are they going to revise upwards some of their prospects or do they take that into account? That’s what’s really going to be key.”
Big banks kicked off reports on Wednesday, with JPMorgan, Goldman Sachs and Wells Fargo. Bank of America and Citigroup reported Thursday. Morgan Stanley reports Friday. PepsiCo and Delta Airlines are also among the first to report.
“The consensus for the first quarter is expected to increase by about 22%. We have an easy calculation from last year. That number could be closer to 30%,” said Brian Rauscher, head of global portfolio strategy at Fundstrat.
Rauscher said he expects the largest gains to be made in cyclical sectors, such as consumer, financial and material, all sectors that benefit from the reopening of the economy.
“I think the profit season will be constructive and will be good enough to keep the market up,” he said.
Based on initial estimates and reports, Refinitiv now expects 25% profit growth for the first quarter. Companies have exceeded estimates so far at a rate of 81%. Profits in the financial sector are expected to increase by 75%. The consumer discretionary sector was hit hard by the strikes a year ago and its profits are expected to recover 98%, according to Refinitiv.
“I think what we’re going to start to see is that operational leverage for these companies is really undervalued. Profits will start to come back faster than revenue,” Rauscher said. “Corporate America has done a good job over the last year streamlining its operations, its cost structures and everything else. Revenue could return 50% and profits could return 100%.”
Major stock indices were higher last week, but small capitalizations fell behind with the loss of ground in Russell 2000.
Next week’s calendar
Monday
1:00 pm Boston Fed Chairman Eric Rosengren
14:00 h Federal budget
Tuesday
Earnings: Fastenal
6:00 am NFIB Small Business Survey
8:30 am IPC
12:00 pm Fed Roundtable on Careers and the Economy: Atlanta Fed Chairman Raphael Bostic Boston Fed Chairman Eric Rosengren Kansas City President Ester George President of the Minneapolis Fed , Neel Kashkari, president of the San Francisco Fed, Mary Daly
12:00 h Philadelphia Fed Chairman Patrick Harker
Wednesday
Earnings: JPMorgan Chase, Goldman Sachs, Wells Fargo, Bed Bath and Beyond, Infosys, First Republic Bank
8:30 am Import prices
2:00 pm Beige book
2:30 p.m. New York Fed Chairman John Williams
4 p.m., Atlanta Fed Chairman Raphael Bostic
Thursday
Earnings: Bank of America, Citigroup, UnitedHealth, PepsiCo, BlackRock, Alcoa, PPG Industries, US Bancorp, Charles Schwab, Delta Air Lines, Rite Aid, Wipro, Taiwan Semiconductor, Truist Financial, SunTrust
8:30 h Initial claims
8:30 am Retail sales
8:30 a.m. Philadelphia Fed Survey
8:30 a.m. Empire State Manufacturing
9:15 h Industrial production
10:00 h Business inventories
10:00 am Feeling of the NAHB home builders
11:30 a.m. Atlanta Fed Chairman Raphael Bostic
2:00 pm The President of San Francisco, Mary Daly
16:00 ICT data
4:00 pm Loretta Mester, president of the Cleveland Fed
Friday
Earnings: Morgan Stanley, PNC Financial, Kansas City Southern, Bank of NY Mellon, Citizens Financial, Ally Financial, State Street
8:30 am Survey of business leaders
8:30 am Housing starts
10:00 h Consumer sentiment