Stocks could take their cue from oil, inflation and interest rates in the week ahead
Traders in the NYSE Floor, Feb. 24, 2022.
In the coming week, March’s employment report will be available. However, developments in Ukraine, oil prices and inflation are expected to drive the market.
Stocks posted gains during the week while oil prices rose and interest rates went up. The sector that performed best was energy, which saw a more than 7 percent increase. West Texas Intermediate crude oil futures were nearly 9% higher during the week. This closely monitored sector was up more than 7%. West Texas Intermediate crude futures closed nearly 9% higher for the week. 10-year TreasuryThe yield reached 2.5% on Friday. This is the highest since May 2019 when it was at 2.14% a week before.
The rise in interest rates is also being watched by traders to determine if it will slow down the market’s growth. This is the S&P 500The week ended Friday with a gain of nearly 1.8%.
“Since the war started, on the ten days that were up, the S&P 500 was up at least 1%,” said Art Hogan, chief market strategist at National Securities. I don’t believe next week will be any different. It doesn’t matter if it’s news from Ukraine, economic data or crude oil futures, we’ll be headline-driven.
Although the market is still in flux, it has been higher so far for March. The S&P was up nearly 3.9% for the month-to-date on Friday.
Fairlead Strategies founder Katie Stockton said that stock charts are promising in the short term, but less so long term.
This short-term momentum should be seized upon. It’s short-term, I find it quite positive. She said that she meant several weeks. We’ve seen some good short-term breakouts, with names moving above their 50-day moving mean.
She said 58% of the S&P 500 companies are now above their 50-day moving averages, a positive sign for momentum. The 50-day represents the average closing prices over 50 sessions. A rise above this can signify more upside.
Stocks such Tesla, Microsoft, AppleAnd AlphabetShe said that all of them have recouped their 50-day moving medians. Stockton pointed out that high-growth tech companies have done the same. Stockton pointed out CLOU,The Global X Cloud Computing ETF.
The 10-year yield looks poised to grow now that it is at 2.50%, according to her. Next, she wants to hit 2.55%. She said, “If you get over 2.55% the next hurdle will be 3.25%.”
Inflation and jobs
This week’s economic calendar is full of activity, as highlighted by the March Jobs Report and data on personal consumption expenditures.
Tuesday will see the release of data regarding consumer confidence as well as home prices.
The Fed closely monitors inflation measures in PCE. Dow Jones predicts that core PCE inflation will rise by 5.5% over the year, as economists believe.
A Friday ISM manufacturing survey will also be available. This day will also see the release of key nonfarm payrolls reports.
Dow Jones predicts that economists will add 460,000 jobs in March, while the unemployment rate falls to 3.7%. This compares with the 678,000 payrolls that were added to non-farm jobs in February, and a 3.8% unemployment rate.
Ben Jeffery is vice president, U.S. rate strategy, BMO. “I believe at this point that inflation data is much more significant than employment, as a matter of the economic path,” he said. While jobs will remain important, the Federal Reserve is now focusing more on fighting inflation while the economy is at its maximum employment.
Fed Chair Jerome Powell said that when he spoke to economists MondayHe said that the central banking would consider raising interest rates aggressively in order to fight inflation. The Fed’s comments initially caused stocks to drop, as investors feared that it could cause slowdowns in the economy or even a recession.
The stock market has moved higher since then but the interest rate is climbing at an alarming pace. The fed funds futures market has been pricing in 50-basis-point rate hikes — or 0.5% — in both May and June.
“[Nonfarm payrolls]This will make a difference… Jeffery stated that it is unlikely to matter if the market pushes the 50-basis rate-hike narrative. Jeffery believes this story will focus more on how far they are willing to go. The excitement surrounding jobs that was once so prevalent at this stage is certainly less.
As a result, inflation expectations have risen. Both the bond and stock markets are closely monitoring the crude oil price. West Texas Intermediate crude futuresThe week’s settlement was 8.8% higher at $113.90 per barrel on Friday.
Oil heats up
Jeffery of BMO stated that it seems as though oil north at $100 is able to last.
Michael Arone of State Street Global Advisors is chief investment strategist. Stocks have suffered when oil prices rose recently. Stocks have rallied when crude oil falls.
Arone stated that “it seems like this week, it was a little more pronounced again because oil prices were rising quite aggressively.” “It’s got this interconnectedness to a few things — sentiment about the Ukraine conflict, how’s that going, inflation and ultimately how hawkish or dovish the Fed is going to be. It’s a binary proxy for other market elements, I believe.
“It’s just a barometer for those other things — the Ukraine conflict, inflation and the Fed,” he said.
Arone stated that investors expect some kind of solution to the Ukraine conflict, although it is not yet clear how. He said that the headlines from Ukraine would continue to create volatility. Investors are starting to feel more comfortable with the outcome at the margin.
Arone believes that the stock market fundamentals have improved than many investors believe. Inflation can lead to higher topline revenue.
According to him, “Each one knows that multiples have fallen, stocks are getting cheaper, but investors don’t realize the correlation between inflation and top-line revenues.” CPI, corporate profits [the consumer price index]they are almost always connected. There are multiples that contract, and earnings estimates are growing.”
Arone indicated that stocks are in an acceptable position, and investors are becoming more positive about the possibility of a peaceful resolution to the conflict.
He said, “If you can move past the Ukraine conflict along with some of your fears regarding the Fed or inflation, I believe that the fundamentals are fine.”
Week ahead calendar
8:15 a.m. Economic indicators
9:00 a.m. S&P/Case-Shiller home prices
10:00 a.m. FHFA Home Prices
John Williams, President of the New York Fed at 9:00 AM
Atlanta Fed President Raphael Bostic at 9:30 AM
10:00 am. Confidence of consumers
10:00 a.m. Philadelphia Fed President Patrick Harker
8:15 a.m. ADP employment
9:15 a.m. Richmond Fed President Tom Barkin
11:00 a.m. Kansas City Fed President Esther George
8:30 a.m. 8:30 a.m.
8:30 a.m. Individual income
8:30 a.m. PCE deflator
9:00 AM New York Fed Williams
Chicago PMI 9:45 am
Monthly vehicle sales
8:30 AM Employment
9:05 AM. Chicago Fed President Charles Evans
9:45 am Manufacturing PMI
10:00 am ISM Manufacturing
10:00 AM Construction Spending