Traders on the New York Stock Exchange
Source: New York Stock Exchange
The tug of war between stocks and rising bond yields could set the tone for next week, especially if positive economic data continues to push Treasury yields up.
Friday’s February jobs report is the highlight of the week’s data and an important current analysis of the virus’s impact on the economy, after only 49,000 jobs were created in January. For February, the economist expects to see 218,000 jobs added, and the unemployment rate is expected to stay the same at 6.3%, according to Dow Jones.
Fed speakers are also the main focus of the markets, after the rapid rise in bond yields last week gave the feeling of a runaway train. Fed Chairman Jerome Powell is the most important speaker when he appears at a Wall Street Journal summit Thursday.
“If he wants to stop this rate hike, he has to say something. But he risks sounding aggressive. The more peaceful he sounds, the higher the rates go,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. When the Fed is described as dovish, it means that it is maintaining an easy policy, such as keeping interest rates at low levels.
Some Fed watchers doubt that the central bank will comment on rising yields more than Powell did last week, when he said the move was the result of a strengthening economy. But bond professionals say Powell could reinforce that the Fed’s policy will remain easy for a long time.
The rapid rise in interest rates this month took investors by surprise. The 10-year benchmark yield, which influences mortgages and other loans, was at 1.46% on Friday, about 15 basis points [0.15%] above the level, it was just a week earlier. After a big increase on Thursday, the 10-year yield was negotiated on both sides by 1.50%, which is the consensus view of where the yields would be at the end of the year, not at the beginning.
The rapid rise in yields, which rise when prices fall, scared stock investors last week, evident in hectic trading and a big sale on Thursday. The Nasdaq fell almost 4% in the week, as technology stocks were the hardest hit, but the S&P 500 fell about 1.3% in the week.
“I think it will probably be a short-term tug of war,” said Sam Stovall, CFRA’s chief investment strategist. The shares have been reflecting optimism about the economy and are now being linked by bonds.
“People forget why we are predicting very high increases in [economic] indicators. It’s just that we were going into the depths of the recession … and now we are in many ways just going back to pre-pandemic levels, “he said.
Stocks, on average, performed poorly in February, but this year they were boosted by an improving economy, the launch of the vaccine and the prospect of a major stimulus package. The Biden government’s $ 1.9 trillion stimulus package is expected to go to a Senate vote next week.
The expected economic stimulus stimulus has also driven higher yields and also raised concerns about inflation.
“In fact, March is a very good month for the market. It is the fourth best in terms of the variation in average price. It is the fourth best in terms of frequency of advance, but it is the fourth lowest in terms of volatility,” said Stovall.
The average gain in March since World War II was 1.1%. But in the 14 years, like this one, when stocks fell in January and rose in February, the S&P rose an average of 1.9% in March.
For February, the S&P gained 3.4%, while the Nasdaq fell behind with a 1.6% gain. The Dow rose 3.9% and Russell 2000 rose 6.8%.
Stovall, who expected market liquidation, said technology and discretionary consumption had one of the worst results last week, when the shares were being sold, but were also the biggest winners. These sectors are also likely to be sold more in any further setback.
“It could be a sale driven by a rotation of expensive technology stocks for smaller issues that generate less market value,” he said.
Jim Caron, head of global macro strategy at Morgan Stanley Investment Management, said one problem for the market was that the rate hike took investors by surprise. “It was really the speed with which it happened that made everyone concerned,” he said, noting the movement last week was distinguished by the fact that it was also in shorter-term titles, like the 5-year note.
“Basically, the market was testing the Fed’s decision to keep rates low for a long time,” said Caron. “They need to make sure that the markets understand that they are seriously on this course to ensure that we get a full and robust recovery, but they also don’t want to be so peaceful as to set prices on all kinds of inflation expectations … and the rates go up just for that. “
“They want to see an increase in rates for a good reason,” he said.
Other data for the week ahead includes ISM manufacturing data, Monday and Thursday unemployment insurance claims, important after an unexpected drop in last week’s data.
The earnings season is drawing to a close, 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 runs throughout the week and includes presentations by industry officials from Saudi Aramco, Chevron, ConocoPhillips, Total and others. The conference has been a 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 am New York Fed Chairman John Williams
9:05 Fed Governor Lael Brainard
9:45 am manufacturing PMI
10:00 ISM – manufacturing
10:00 Construction expenses
2:00 pm Atlanta Fed President Raphael Bostic
Tuesday
Vehicle sales
Earnings: Target, Box, Hewlett Packard Enterprise, Nordstrom, Ross Stores, International Game Technologies, AutoZone Kohl’s, Abercrombie and Fitch, Hovnanian
1 pm Fed Governor Lael Brainard
2:00 pm San Francisco Fed President Mary Daly
Wednesday
Earnings: Wendys, Dollar Tree, Brown-Forman, Vivendi, Splunk, Marvell Tech, Snowflake, Vroom, American Eagle Outfitters
ADP Employment 8:15 am
9:45 AM Service PMI
10 am Philadelphia Fed Chairman Patrick Harker
ISM Services at 10am
12.00 Atlanta Fed Chairman Raphael Bostic
1:00 pm Chicago Fed Chairman Charles Evans
Beige Book 14:00
Thursday
Earnings: Broadcom, Costco, BJ’s Wholesale, Burlington Stores, Ciena, Michael’s Cos, IMAX, Kroger, Cooper Cos
8:30 am Initial claims for unemployment insurance
8:30 am Productivity and costs
10:00 Factory orders
12.05 pm, Fed Chairman Jerome Powell
Friday
Earnings: Large batches
8:30 am Employment
8:30 am International trade
15h00 Consumer credit
3:00 pm Atlanta Fed’s Bostic