Traders on the floor of the New York Stock Exchange
Source: New York Stock Exchange
The war between equities and rising bond yields could set the tone for next week, especially if positive economic data continues to increase Treasury yields.
Friday’s February employment report is the highlight of the week’s data and an important current look at the virus’s impact on the economy, after only 49,000 jobs were added in January. For February, economists expect to add 218,000 jobs, and the unemployment rate should remain the same at 6.3%, according to Dow Jones.
Fed speakers are also a major focus on the markets, after the rapid rise in bond yields over the past week has felt like a runaway train. Fed Chairman Jerome Powell is the keynote speaker when he appears at a Wall Street Journal summit on Thursday.
“If he wants to stop this rate hike, he has to say something. But he risks sounding crazy. The more naughty he sounds, the higher the rates will go,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. When the Fed is described as bad, it means maintaining a light policy, such as keeping interest rates low.
Some Fed observers doubt the central bank will comment on higher yields more than Powell did last week, when he said the move is the result of a strengthened economy. But bond professionals say Powell could consolidate that Fed policy will remain light for long.
The rapid evolution of interest rates this month surprised investors by surprise. The 10-year benchmark yield, which influences mortgages and other loans, was 1.46% on Friday afternoon, about 15 basis points, or 0.15%, above its level just a week earlier. After a big rise on Thursday, the 10-year yield traded on both sides of 1.50%, which is the consensus on where the yields would be at the end of the year, not the beginning.
The rapid rise in yields, which rises as prices fall, has scared stock investors in the last week, evident in hectic trading and a big sell-off on Thursday. The Nasdaq fell nearly 4.9% for the week, as technology stocks were hardest hit, but the S&P 500 fell about 2.4% for the week.
“I think it will probably be a short-term tow,” said Sam Stovall, CFRA’s chief investment strategist. The shares reflect optimism about the economy, and are now joined by bonds.
“People forget why we look at huge growths from year to year [economic] indicators. It’s that we have just entered the depths of the recession … and we are now, in many ways, just returning to pre-pandemic levels, “he said.
Stocks performed poorly on average in February, but this year they were higher, boosted by an improved economy, the launch of vaccines and the prospect of a large package of incentives. The $ 1.9 trillion Biden administration stimulus package is expected to be voted on in the Senate next week.
The expected economic growth from the stimulus has also led to higher yields and also raised inflation concerns.
“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 terms of frequency of advance, but it’s the fourth lowest in terms of in terms of volatility, “Stovall said.
The average gain in March since World War II was 1.1%. But in 14 years like this, when stocks were lower in January but higher in February, the S&P rose an average of 1.9% in March.
For February, S&P gained 2.6%, while the Nasdaq remained at 0.9%. The Dow rose 3.2% and the Russell 2000 rose 6.1%.
Stovall, who expected a sale from the market, said the technology and consumer discretionary sectors were among the worst last week, when stocks were selling, but they also won the most. These sectors will also be sold more in any subsequent withdrawals.
“It could be the sale caused by a rotation of stocks of expensive technologies in smaller and less market-driven value issues,” he said.
Jim Caron, head of global macro strategies at Morgan Stanley Investment Management, said a problem for the market was that the rate hike took investors by surprise. “The very speed with which it happened was the one that worried everyone,” he said, noting that last week’s move was distinguished by the fact that it was also in shorter securities, such as the 5-year note.
“Basically, the market tested the Fed’s determination to keep rates low for a long time,” Caron said. “We need to make sure that the markets understand that they are serious about this course to ensure that we get a full and robust recovery, but they also don’t want to be so corrupt that all of a sudden we value everything. the types of inflation expectations … and rates are rising right there. “
“They want to see an increase in rates for a good reason,” he said.
Other data from next week includes ISM manufacturing data, Monday and Thursday claims, unimportant, important after an unexpected decline in last week’s data.
The earnings season is coming to an end, but retailers will report, with Target, Kohl’s and Nordstrom on Tuesday and Costco and BJ’s Warehouse on Thursday.
CERAWeek’s annual energy conference runs all week and includes presentations from industry officials from Saudi Aramco, Chevron, ConocoPhillips, Total and others. The conference has been a mainstay of the oil industry for more than three decades.
The calendar of the week before
months
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 am Fed Governor Lael Brainard
9:45 PMI manufacturing
10:00 am ISM Manufacturing
10:00 am Construction expenses
14:00 Atlanta Fed Chairman Raphael Bostic
Tuesday
Vehicle sales
Earnings: Target, Box, Hewlett Packard Enterprise, Nordstrom, Ross Stores, International Game Technologies, AutoZone, Kohl’s, Abercrombie and Fitch, Hovnanian
13:00 Fed’s Brainard
14:00 Mary Daly, President of the San Francisco Fed
Wednesday
Earnings: Wendy’s, Dollar Tree, Brown-Forman, Vivendi, Splunk, Marvell Tech, Snowflakes, Vroom, American Eagle Outfitters
8:15 am ADP employment
9:45 PM PMI Services
10:00 am The President of the Philadelphia Federation, Patrick Harker
10:00 AM ISM Services
12:00 pm Atlanta Fed’s Bostic
13:00 President of the Chicago Federation, Charles Evans
14:00 Beige book
Thursday
Earnings: Broadcom, Costco, BJ’s Wholesale, Gap, Burlington Stores, Ciena, Michael’s Cos, IMAX, Kroger, Cooper Cos
8:30 am Initial jobless claims
8:30 am Productivity and costs
10:00 am Factory orders
12:05 pm Fed Chairman Jerome Powell
Friday
Earnings: Large lots
8:30 am Employment
8:30 am International Trade
15:00 Consumer credit
15:00 Bostic Fed Fed Atlanta