Traders on the floor of the New York Stock Exchange, February 24, 2022.
The March employment report is due out next week, but events in Ukraine, the price of oil and an inflation report are likely to drive the market.
Stocks posted gains for the week as interest rates rose and oil prices soared. Energy was the top performing sector, up more than 7%, as West Texas Intermediate Crude futures closed nearly 9% higher on the week. The closely watched 10 year Treasury the yield was on the rise, hitting 2.5% on Friday, its highest level since May 2019, from 2.14% just a week earlier.
Traders are also watching rising interest rates to see if they will stop market gains. the S&P 500 it rose nearly 1.8% for the week, ending Friday at 4,543.06.
“Since the war started, in the ten days that they were up, the S&P 500 is up at least 1%,” said Art Hogan, chief market strategist at National Securities. “I don’t think next week will be any different. We’ll be driven by headlines, whether it’s economic data, news out of Ukraine or crude oil futures.”
The market is down but higher for the month of March so far. The S&P is up almost 3.9% so far this month on Friday.
Katie Stockton, founder of Fairlead Strategies, said stock charts look promising in the short term, but are less clear in the long term.
“We should build on this momentum in the short term. I feel pretty good in the short term. I mean several weeks,” he said. “We’ve also seen some nice short-term breakouts…names breaking above their 50-day moving averages.”
He said 58% of S&P 500 companies are now above their 50-day moving averages, a positive sign of momentum. The 50-day price is simply the average closing price of the last 50 sessions, and a move above it may indicate further upside.
actions such as Tesla, Microsoft, Apple and Alphabet all have regained their 50-day moving averages, he said. Stockton noted that some high-growth tech names have, too. she pointed CLOVE, the Cloud computing X global ETFs.
Turning to yields, he said the 10-year note looks set to consolidate now that it has touched 2.50%. His next target is 2.55%. “If we get past 2.55%, the next hurdle is 3.25%,” she said.
Jobs and inflation
There is a busy economic calendar in the week ahead, highlighted by the March jobs report and personal consumption expenditures data.
Data on consumer confidence and home prices are due out on Tuesday.
The PCE includes a measure of inflation that the Fed follows closely. Economists expect core PCE inflation to rise 5.5% year over year when it is reported on Thursday, according to Dow Jones.
There is also the ISM manufacturing survey reported on Friday. The key Non-Farm Payrolls report will also be released on that day.
Economists expect 460,000 jobs to be created in March and the unemployment rate to fall to 3.7%, according to Dow Jones. That compares with 678,000 nonfarm payrolls added in February and an unemployment rate of 3.8%.
“I definitely think that right now the inflation data is much more significant than employment, in terms of the trajectory of the economy,” said Ben Jeffery, vice president of US rates strategy at BMO. Jobs will remain important, but the Federal Reserve has pivoted to focus more on fighting inflation as the economy hits employment peak.
Fed Chairman Jerome Powell made that point when he spoke to economists on Monday, saying the central bank would be willing to be more aggressive in raising interest rates to fight inflation. Stocks were initially sold on his comments, amid fears the Fed could slow the economy or even trigger a recession.
Since then, stocks have risen, but interest rates have skyrocketed. The fed funds futures market has been pricing in rate hikes of 50 basis points, or 0.5%, in both May and June.
“[Nonfarm payrolls] will matter… I think it will probably be more of a story of how far the market is willing to push the 50 basis point rate hike narrative, which will probably be more pressing next week,” Jeffery said. “The excitement that some time around jobs is definitely less at this point in the cycle.”
Rising oil prices have been raising inflation expectations, and the bond market is closely watching crude prices, as is the stock market. West Texas Intermediate Crude Futures it settled 8.8% for the week, at $113.90 a barrel on Friday.
the oil gets hot
“It looks like oil above $100 has some staying power,” said BMO’s Jeffery.
Michael Arone, chief investment strategist at State Street Global Advisors, said the pattern between equities and oil will remain important. When oil spiked recently, stocks weakened, he said. Meanwhile, when crude falls, stocks have been able to rise,
“It looks like this week it was a little more pronounced again when oil prices went up quite aggressively,” Arone said. “It has this interconnection with a few things: the sentiment around the Ukraine conflict, how that’s going, inflation, and ultimately how hawkish or dovish the Fed is going to be. I think it came about as one of those binary proxies for these other things. in the market.”
“It’s just a barometer for those other things: the Ukraine conflict, inflation and the Federal Reserve,” he said.
Arone said investors anticipate some kind of resolution that will end the conflict in Ukraine, but it is not clear when. “Headlines coming out of Ukraine will continue to cause volatility,” he said. “At the margin, investors are comfortable with the likely outcome.”
Arone said stock market fundamentals are better than some investors expect. When inflation increases, the main income can also increase.
“Everybody knows that multiples have contracted, stocks have gotten cheaper, but one thing that’s been lost among investors is that blue-chip income has this correlation with inflation,” he said. “Corporate Earnings and CPI [the consumer price index] they are somewhat connected. He has multiple contracts, but earnings estimates are rising.”
Arone said stocks are reasonably positioned and investors are more comfortable that there will be a pro-war resolution.
“If we can get past the Ukraine conflict and some of the fears about the Fed and inflation, I think the fundamentals are fine,” he said.
week ahead calendar
8:30 am Economic advance indicators
9:00 am S&P/Case-Shiller Home Prices
9:00 am FHFA Home Prices
9:00 a.m. New York Fed President John Williams
9:30 a.m. Atlanta Fed President Raphael Bostic
10:00 a.m. Consumer Confidence
10:00 a.m. SHAKE
10:30 a.m. Philadelphia Fed President Patrick Harker
8:15 ADP employment
8:30 a.m. Real GDP
9:15 a.m. Richmond Fed President Tom Barkin
1:00 p.m. Esther George, President of the Kansas City Fed
8:30 a.m. Initial Claims
8:30 a.m. Personal entry
8:30 PCE deflator
9:00 a.m. New York Fed Williams
9:45 a.m. Chicago PMI
Monthly vehicle sales.
8:30 a.m. Employment
9:05 a.m. Chicago Fed President Charles Evans
9:45 a.m. Manufacturing PMI
10:00 a.m. Manufacturing ISM
10:00 a.m. Construction expenses