The Wall Street bull is seen during the passing of the snowstorm on January 31, 2021 in New York City.
Eduardo MunozAlvarez | VIEW press | Corbis News | Getty Images
A decline in new Covid infections, along with improved economic data and hopes for a stimulus, could boost the actions that flourish in a recovering economy next week.
Last week, expectations of a strong economic recovery helped boost interest rates.
While the broader stock market was in turmoil, sectors that did well in a recovery – financial, air and industrial – stood out as leaders. This is known as the reflection trade.
These shares gained at the expense of growth and technology, down 2%. Strategists expect the reflux trade to continue, as signs suggest that the economy may see a sharp recovery.
The S&P 500 fell 0.7% for the week to 3,906, while the Dow rose a tiny 0.1% to 31,494. The Nasdaq fell 1.57% in the week, to 13,874, with the fall in technology. Apple, for example, gave up 4% in the week.
The big event of the week that follows is the testimony of Federal Reserve Chairman Jerome Powell, who gives his semiannual deposition on the economy to the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday .
He must discuss rising interest rates, as well as concerns that inflation may start to take off.
“He will have to recognize that the data is improving and the virus situation is improving materially,” said Mark Cabana, head of US tax strategy at Bank of America. “It will be difficult for him to sound as peaceful as he has been.”
But Powell must continue to emphasize that the Fed will keep rates low for a long time and keep its policies easy to help the economy.
Improve predictions
Economists last week increased tracking forecasts for the first quarter’s gross domestic product, fueled in part by an unexpected 5.3% jump in January retail sales.
Goldman increased its first quarter growth to 6%, and Morgan Stanley said it was following up by 7.5% in the first quarter. Economists linked the surprise gain in retail sales to stimulus checks sent to individuals under the latest $ 900 billion stimulus program approved by Congress in late December.
The Biden government proposed another $ 1.9 trillion aid package from Covid. This could reach the House of Representatives next week.
“[Powell’s] I will follow the script. The roadmap is that lawmakers need to continue to support the economy. It will support the government’s efforts to approve a major package, “said Mark Zandi, chief economist at Moody’s Analytics.
Important data during the week
The gains remain important. There are more than 60 companies reporting, including Home Depot, Macy’s and TJX.
The main economic reports falling next week include durable goods on Thursday, along with personal income and spending data on Friday
Friday’s report includes the personal consumption expenditure price index, monitored by the Fed. The market is watching for signs of rising inflation.
“I think the boom will start sooner than most people think,” said Ed Keon, chief investment strategist at QMA.
He said the stronger economy is helping to boost Treasury yields, with the 10-year index hitting 1.36% in a year on Friday. Keon said the vaccine’s launch is helping prospects, as well as slowing the spread of the virus.
“I think people were expecting a boom in the second half, but I think the second quarter will be very strong, as people change their behavior,” he said.
“Caution when it comes to saving and not going out, it will pass sooner than we think,” said Keon. “At the moment, you should see a figure of 10% of GDP in the second or third quarter. This is also due to the fact that we are likely to receive a large stimulus package.”
He said investors are underestimating the surge in economic activity that is expected to start in March and gain momentum in the second and third quarters as more people return to dining and other activities.
“I think the world is going to look very different than in the past 12 months. We are still optimistic. We are still overweight in stocks, ”said Keon.
He said a flood of money could hit the economy.
“The size of the US economy last year was about $ 21 trillion,” added Keon. “Families now have an excess of savings of about $ 1.5 trillion and the stimulus package is likely to be around $ 1.2, $ 1.6 trillion.”
He said the service sector should begin to see a benefit that has been boosting the production of economy goods. “You will see an incredible boom.”
Next week’s calendar
Monday
Earnings: Dish Network, Royal Caribbean, Marathon Oil, Ingersoll-Rand, Occidental Petroleum, Transocean, Zoominfo, ONEOK, HSBC
10h00 Main economic indicators
Tuesday
Earnings: Home Depot, Macy’s, Intuit, Thomson Reuters, Square, Toll Brothers, Jazz Pharmaceuticals, McAfee, Medtronic, Pioneer Natural Resources, Bank of Montreal
Domestic FHFA prices at 9am
9 am S & P / Case-Shiller home prices
10:00 Fed Chairman Jerome Powell, semiannual economic testimony Senate Banking Committee
Wednesday
Earnings: Lowe’s, NVIDIA, Viacom, Public Storage, Booking Holdings, TJX, Brookdale, Royal Bank of Canada, Apache, Petrobras, Pure Storage, L Brands, Casper Sleep
7:00 am Mortgage applications
10:00 Sale of new houses
10 am Fed Chairman Powell, half-yearly economic testimony on 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 am Atlanta Fed Chairman Raphael Bostic
8:30 Unemployment claims
8:30 am Durable goods
8:30 am Second reading of fourth quarter GDP
10:00 Pending home sales
10:00 Advanced economic indicators
10:00 St. Louis Fed Chairman James Bullard
3:00 pm 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 am Advanced trade
9:45 am Chicago PMI
10:00 Consumer sentiment
Saturday
Earnings: Berkshire Hathaway