Lay Guzman stands behind a plastic partial protection screen and wears a mask and gloves while working as a cashier at the Presidente supermarket on April 13, 2020 in Miami, Florida.
Joe Raedle | Getty Images
Investors will follow the progress of the reopening of the economy, as well as a series of economic reports in the coming week that will provide a look at the consumer in April as the economy lost 20.5 million jobs.
Fed Chairman Jerome Powell speaks during a webcast hosted by the Peterson Institute at 9 a.m. Wednesday, and will be watched closely for any further insights into the economy or the Fed’s programs.
There are only a few earnings releases to come, but there will be an avalanche of economic reports, including consumer and producer inflation, consumer sentiment and especially retail sales on Friday.
Actions against bonds
Stocks have risen in the past week, although some bond yields have hit record lows. Yields move in front of the price, and bonds generally move in front of stocks.
“The stock market is negotiating the reopening and the bond market doubts the dynamic pace of an economic recovery upon reopening,” said Peter Boockvar, chief investment strategist at Bleakley Advisory Group.
Small cap stocks and technology led the way last week. The Nasdaq jumped 6% in one week, where it wiped out its losses for the year and turned positive. The Russell 2000 small cap increased 5.5%.
The S&P 500 rose 3.5% for the week to 2,929, with technology up 6.6% and consumer discretionary stocks up 4.4%.
Both the bond market and the stock market reacted to Fed programs that put more liquidity in the financial system, with bond rates falling and stocks rising sharply.
“The stocks just seem to be out of touch with everything else,” said Michael Schumacher, rate manager at Wells Fargo. Some bond yields, such as the 10-year benchmark yield, which has an impact on many types of loans, were slightly higher than the record $ 96 billion in treasury auctions in the coming week. But the 2 years, at a new low of 0.10%, was traded on worries about the economy.
Market professionals will wait for Powell to comment on market speculation that the Fed may reduce its benchmark rate to a negative yield. Fed officials said they were not interested in negative rates, which are used by central banks in Europe and Japan. But for the first time last week, traders led futures contracts on federal funds to post slightly negative contract rates starting in November.
“He could cancel negative returns if he wanted to,” said Schumacher. “The Fed has repeatedly argued against negative policy rates. Now there is a chance that Powell can comment on this. He has commented on it several times in the past six months.”
Much of the stock market gain has come from large technology companies whose operations have not been significantly affected by the coronavirus.
“The technology was the closing trade and the small caps are reopening,” said Boockvar, noting that the small caps are focused on the domestic market and are sensitive to back-to-work trade.
Apple joined the reopening on Friday when its stock rose after announcing that it would reopen some of its stores in the United States.
“The stock market has some kind of pass as the months go by and things reopen. At some point this pass will expire” and the reopenings will have to rebound, said Boockvar.
Investors are watching anything suggesting that reopening by the state is boosting activity.
Retail sales on Friday will be an important target and are expected to drop 11% sharply, but more than 6% when cars and gasoline are phased out, he said.
In the oil market over the past week, crude oil rose 24% as traders reacted to reports that demand for gasoline was accelerating in the United States at different speeds, and California has was the last to reopen an activity on Friday. .
“Part of the reason the market is going up is because the virus curve is bending, the economic data is showing signs of a rebound. It is not there yet but you know it is coming. global phenomenon, “said James Paulsen, chief investment officer. strategist at Leuthold Group. He noted that Chinese export figures had unexpectedly increased in April for the first time this year.
Paulsen said he expects the stocks will remain in a recovery.
“There is a lot of value out there if you are outside the strong growth of the S&P 500,” he said. “When the fear is as high as it is, it’s usually a good time to look at risky assets. Gold is at a peak of 50 years relative to commodity prices. People are buying bonds with practically zero yield. For me, there is a fairly defensive behavior and frightened attitudes rather than the reverse. “
Strategists say the market could retest its March lows, but many say the bottom has been set.
“I am increasingly confident that we have seen the lows, and we are starting a recovery in the stock market, but I think the volatility will stay there, and there will be challenges. I think the general direction is at the moment rather than down, “said Paulsen.
Paulsen said the fear of reinfection persists in the event of a new wave of viruses. “There are a lot of terrible things that could happen and be terrible for the stock market,” he said. “A stock could create a week up or down and then disappear again.”
“I think the rise in the stock market is really more due to a lack of sellers. But I don’t think there are a lot of buyers. If more people thought it was ending … there could be a lot more money going to come back into the equities, to some extent, “said Paulsen.
Market professionals are keeping an eye on yields, ahead of the government record auction of $ 96 billion next week for 3- and 10-year notes and 30-year bonds.
Weekly calendar in advance
Earnings: AutoNation, Under Armor, Marriott, Cardinal Health, Choice Hotels, Cleveland-Cliffs, Mylan, ON Semiconductor, Zimmer Biomet, Simon Property Group, Ambac Financial, Datadog, Cabot, Caesars Entertainment, Tilray
Earnings: Toyota, Allianz, Duke Energy, Vodafone, Honda Motor, Ingersoll Rand, Casper Sleep
6:00 am NFIB survey of small businesses
8:30 am CPI
9:00 am James Bullard, President of the Saint-Louis Fed
10:00 am Patrick Harker, President of the Philadelphia Fed
2:00 p.m. Federal budget
5:00 p.m. Cleveland Fed President Loretta Mester
Earnings: Cisco, Jack in the Box, Tencent, Sony
8:30 a.m. PPI
9:00 am Jerome Powell, President of the Fed
Earnings: Brookfield Asset Management, Applied Materials, NortonLifeLock, Petrobras, Aurora Cannabis
8:30 am Unemployed claims
8:30 am Import price
10:00 am Fed vice-president Randal Quarles testifies before Senate banking committee
1:00 p.m. Minneapolis Fed President Neel Kashkari
Earnings: JD.com, VF Corp
8:30 a.m. Retail sales
8:30 a.m.Empire State Manufacturing
9:15 a.m.Industrial production
10:00 a.m. JOLTS
10:00 am Commercial inventories
10:00 am Consumer sentiment
2:00 p.m. ICT data