Stocks could stay choppy as fears about the Fed overshadow earnings news
Traders in the NYSE Floor, March 29th 2022.
While earnings season may be distracting investors from other matters, it is unlikely to drive the market’s overall direction in the coming week.
Investors instead, will keep an eye on the things that have been worrying the market — interest rates, inflation and war in Ukraine — and they will be sifting through company commentaries to see how these things are impacting the bottom line.
It should be Thursday, the highlight of the week. International Monetary Fund panel,This panel will include Jerome Powell (Federal Reserve Chairman) and Christine Lagarde (European Central Bank president), among other people. CNBC’s Sara Eisen will moderate the panel, which is about global economic issues.
There are only a few reports on economics, but many of them focus on housing. Monday is the release of the National Association of Home Builders Survey. On Tuesday, housing starts will be reported and on Wednesday existing home sales will. Thursday’s Philadelphia Fed manufacturing survey will be released, while Friday’s manufacturing and PMI surveys of services and manufacturing are being issued.
Jonathan Golub from Credit Suisse, Chief U.S Equity Strategist, stated: “I believe the market is so focused upon the Fed and inflation that stocks will have very weak responses to earnings.” I believe the market will trade higher, but it isn’t going to grant companies all credit.
Next week will see earnings from seven Dow blue chip companies, which includes IBM, Procter and Gamble, Travelers, Dow Inc, Johnson and Johnson, American ExpressAnd Verizon. NetflixReports Tuesday TeslaBoth reports are Wednesday at the bell. SnapThe Thursday reports
The bank earnings will keep rolling in Bank of AmericaAnd Bank of New York MellonBoth will be reporting Monday. Trucking companies and other transportation firms will also be reporting Monday. Knight-Swift TransportationAnd J.B. Hunt Transport. United Airlines, American AirlinesAnd Alaska AirRailways and other railroads also appear on the calendar CSXAnd Union Pacific.
Poor guidance will continue. Golub stated that companies will continue to complain and whine about the cost pressures even though they are reporting better results. It will be a lot more difficult to price the goods, I believe.
Analysts believe there might be more misses and fewer beats in the first quarter earnings season.Based on Refinitiv’s I/B/E/S data, earnings are forecast to rise by 6.3% in the first quarter.
Keith Lerner (co-chief investment officer at Truist) said that he believes there will be more diversification and divergences. I believe you will see more companies with good management and less profit-driven businesses. There will be more extremes than broad-based strength in the last two years.
The Federal Reserve is expected to increase interest rates in May, and then continue tightening policy. Strategists predict that the market will remain volatile.
Lerner stated that “Our broad view is that we’ll continue to be within this large, broader choppy spectrum.” For the next few months, there will be no new highs or new lows.
The S&P 500 was down about 1.5% for the week, as of Thursday afternoon.
The stock market was hit hard by higher bond yields over the past week. 10-year Treasury yieldIt jumped quickly to a peak of 2.83% Wednesday, up from 2.70% the Friday before. On Thursday, it was at 2.82%.
Powell’s Thursday comments will focus attention on the bond market.
I think Powell will be very hawkish. Michael Schumacher from Wells Fargo’s rates strategy said that Powell will emphasize the fact they are going to hike, hike many times, balance out, and then get on with their lives.”
Neutral for stocks
Lerner stated that uncertainty over the Fed was one of the reasons he reduced the stock market’s attractiveness to neutral last week. Also, he did so based on the rising yields and defensive positioning that he perceives in the stock exchange.
The rise in yields has caused comparative valuations to be in a position where stock have had an outperformance in the past. [versus bonds]He stated that 3.5% is a good value, and not the lower double digits.
Lerner said defensive sectors like consumer staples, health care, energy and REITS have been outperforming.
The market’s most economically vulnerable areas – home builders, financials and transportation – are all slowing down. This is telling us that the market worries about slower growth, he stated. We believe that recession risk will remain low for the next year. This does not mean that the economy is likely to slow down. This is partly due to the Fed, and the stubborn inflation numbers.”
Week ahead calendar
8.30 a.m. Leaders in business survey
10:00 a.m. NAHB home builders survey
4:00 p.m. St. Louis Fed President James Bullard
8:30 AM Housing Starts
Chicago Fed President Charles Evans, 12:05 pm
Earnings: Procter and Gamble, Tesla, United Airlines, Nasdaq, CSX, Abbott Labs, Alcoa, Anthem, Baker Hughes, Comerica, Knight-Swift Transportation,GATX is the Sleep Number Tenet Healthcare,Alcoa and Equifax. Steel Dynamics Lam Research, Equifax
10:00 a.m. Existing home sales
10:00 a.m. Mary Daly, President of the San Francisco Fed
Chicago Fed’s Evans at 11:30 AM
2:00 p.m. Beige book
Earnings: AT&T, Dow, American Airlines, Blackstone, Union PacificSnap, Intuitive Surgery PPG Industries, Keycorp, Danaher,Freeport McMoRan Alaska Air, Pentair, Tractor Supply, Huntington Bancshares, Philip Morris Intl, Quest Diagnostics, Genuine Parts, Pentair
8:30 a.m. 8.30 a.m.
Philadelphia Fed manufacturing at 8:30 AM
1:00 p.m. Fed Chairman Jerome Powell & ECB President Christine Lagarde join IMF panel
9.45 AM Manufacturing PMI
9:00 a.m. PMI Services