Stocks could see more tumult next week, especially if bond yields continue to scream higher
Traders at the NYSE floor, March 28th 2022.
Stocks are expected to be volatile after a week of unusual turbulence. Investors will continue to monitor the evolution of bond yields and await new data about inflation.
This Wednesday’s March consumer price index is the big news for markets. The Economists predict a strong inflation reading but this should be moderated from the 8.5% year-over-year pace of March. On Thursday, a second inflation report will be released, called the producer price index. This is an indicator of wholesale prices.
Mark Zanidi (chief economist, Moody’s Analytics) said that “I believe it’s going be a hot figure but not as sizzling like last month.” Zandi anticipates that headline CPI will rise by 0.3% month-over-year or 8.2% annually.
As the Federal Reserve moves ahead with its interest rate increases, investors are keeping an eye on inflation and key reports.
Fed raised its fed funds target rateWednesday: The Fed chairman raised the bar by half a point and indicated it might follow through with further hikes of similar size. Fed Chairman Jerome PowellFollowing the meeting, he stated that he believes the economy will see a soft or soft-ish landing.
Art Hogan is National Securities’ chief market strategist. “I believe the two biggest concerns for the markets are inflation and how hawkishly the Fed will try to get it under control.” Hogan indicated that investors are concerned about China’s economic slowdown as it fights Covid.
Hogan stated that if the CPI is as forecasted, it could provide some stability for stocks and bonds. It would appear that inflation has peaked.
The sector with the highest performance was energy, which saw a 9% increase in week-over-week. The worst performers were REITs, which dropped more than 4.6%. Consumer discretionary was down 4%.
Bond investors are also interested in the stock market. Yields have been increasing as bonds have been sold.
The 10-year Treasury yieldPushed through to 3% for the first time since late 2018It was 3.12% on Friday and it has been at that level for the last week. In the midst of its swift rise, stocks and especially growth have suffered from the rising 10 year yield.
At the beginning of this year, the benchmark 10-year rate was 1.5%. It is linked to many lending rates, such as mortgages.
Julian Emanuel of Evercore ISI, Head Equity, Derivatives, and Quantitative Strategy, said, “If people realize inflation is peaking…that argument could be made that the 10-year yield won’t necessarily peak but will stop going parabolic…that could be what could get public to slow down selling.”
Emanuel stated that retail investors are heavily invested in growth companies. These stocks perform better when there is less money.
He said, “The bond market calls the tune here.” He believes the stock market will soon reach its lowest point. “What we’ve seen is both upside and downside volatility in equities…this week and that’s the start of a bottoming process.”
Some technical analysts said stocks could take another dip lower if the S&P returns to Monday’s low of 4,062 and stays there.
Scott Redler, Partner at T3Live.com, targeted 3,850 on the S&PIf the index breaks its Monday low, the next lower stop will be chosen.
He said, “As far as we know it, every rally that offers an oversold bounce is sold.” I believe the weekend news will play an important role in Monday’s emotional open.
Because it is Victory Day, Russia’s Victory Day, he said that there might be new information on Ukraine. Russian President Vladimir Putin is also expected to address the gathering.
Redler claimed that Microsoft AppleThis could impact trading in the coming week. Apple could break support below $150 Microsoft breaks $270, a level it’s been holding, the two biggest stocks could sweep the S&P 500 below 4,000.
They should break these levels to add grease and push the market towards new lows. He said that this could help us get closer to a trading low.
He stated that if Microsoft broke the $270 threshold, it would create a negative head/shoulder formation on its chart which could signify more weakness.
Week ahead calendar
Earnings: Coty, Elanco Animal HealthDuke Energy Palantir Technologies, Viatris, Hilton Grand Vacations, Tyson, Tegna, BioNTech, Lordstown Motors, Energizer, Him & Hers Health, 3D Systems, Vroom,AMC Entertainment IAC/InteractiveXPO Logistics, Novavax and ThredUp by Brighthouse Financial Simon Property, International Flavors and Fragrances,Equitable Holdings Suncor Energy
8:30 a.m. Atlanta Fed President Raphael Bostic
10:00 am Wholesale Trade
Senior loan officer survey at 2:20 p.m.
Earnings: Bausch Health, Warner Music Brink’s, TransDigmEdgewell Personal Care Aramark,Planet Fitness Reynolds Consumer Products, International Game Tech, Bayer, Nintendo, Hyatt Hotels,Choice Hotels Rackspace, Coinbase, Electronics Arts, Inovio Pharma, Occidental Petroleum, Allbirds, H&R Block
NFIB at 6:00 AM
7.40 AM New York Fed President John Williams
9:15 a.m. Richmond Fed President Tom Barkin
12:00 p.m. Fed Governor Christopher Waller, and Minneapolis Fed President Neel Kazhkari
3:00 p.m. Cleveland Fed President Loretta Mester
Atlanta Fed’s Raphael Bostic at 7:00 PM
8:30 AM CPI
12:00 p.m. Atlanta Fed’s Bostic
2:00 p.m. Federal budget
8:30 a.m. 8:30 a.m.
Mary Daly, President of the San Francisco Fed at 4:00 pm
8:30 a.m. 8:30 a.m.
10:00 a.m. Consumer sentiment