Traders on the NYSE floor, February 24, 2022.
The March jobs report is due next week, but developments in Ukraine, oil prices and inflation reports are likely to boost the market.
Stocks recorded gains for the week, while interest rates edged higher and oil prices spiked. Energy was the top performer, gaining more than 7%, as West Texas Intermediate crude futures closed nearly 9% higher for the week. Closely monitored 10 year treasury Yields tumbled, reaching 2.5% on Friday, the highest level since May 2019, from 2.14% just a week earlier.
Traders are also watching the rise in interest rates to see if they hold back the market’s momentum. The S&P 500 was up nearly 1.8% for the week, ending Friday at 4,543.06.
“Since the fight began, the S&P 500 has gained at least 1%,” said Art Hogan, chief market strategist at National Securities. “I don’t think next week will make any difference. We’ll be paying attention, whether it’s future economic data, news on Ukraine or crude oil.”
Markets have fallen around but higher in March so far. The S&P was up nearly 3.9% in the month to Friday.
Katie Stockton, founder of Fairlead Strategies, says stock charts look promising in the short term but less clear in the long term.
“We should take advantage of this short-term momentum. I feel pretty good about it in the short-term. I mean a few weeks,” she said. “We’ve also seen some nice short-term breakouts… the names break above their 50-day moving averages.”
She said 58% of S&P 500 companies are now above their 50-day moving average, a positive sign of momentum. The 50-day close is simply the average closing price of the past 50 sessions, and a move above it could signal more upside.
Stocks like Tesla, Microsoft, Apple and Alphabet all have regained their 50-day moving averages, she said. Stockton notes that a number of high-profile tech names have done the same. She pointed at CLOUD, the Cloud Computing Global X ETFs.
As for yields, she said the 10-year expectation would be underpinned as it has now touched 2.50%. Her next target is 2.55%. “If we go above 2.55%, the next hurdle is 3.25%,” she said.
Employment and inflation
There’s a busy economic calendar next week, highlighted by the March jobs report and personal consumption spending data.
Consumer confidence and home price data will be released on Tuesday.
PCE includes an inflation measure that is closely watched by the Fed. Economists expect core PCE inflation to rise 5.5% year-on-year when it is reported on Thursday, according to Dow Jones.
There is also the ISM manufacturing survey reported on Friday. The key nonfarm payrolls report will also run that day.
Economists expect an additional 460,000 jobs in March and the unemployment rate falling to 3.7%, according to Dow Jones. That compares with the 678,000 nonfarm payrolls added in February and the unemployment rate of 3.8%.
“I definitely think that at this point, inflation data makes a lot more sense than jobs, in terms of the trajectory of the economy,” said Ben Jeffery, vice president of US rate strategy at BMO. economy. Jobs are still important, but the Federal Reserve has shifted its focus more toward fighting inflation, while the economy is reaching full employment.
Fed Chairman Jerome Powell made that point when he spoke to economists on Monday, said that the central bank would be more willing to raise interest rates more aggressively to combat inflation. Stocks initially sold off following his comments, amid concerns the Fed could slow the economy or even lead to a recession.
Since then, stocks have rallied higher, but interest rates have skyrocketed. The serviced funds futures market has priced in rate hikes of 50 basis points – or 0.5% – in both May and June.
“[Nonfarm payrolls] there’s going to be a problem… I think there’s probably going to be a story about how willing the market is to fix a 50-point rate hike, which is likely to be more pressing next week,” Jeffery said. “The excitement that used to surround jobs is certainly less at this point in the cycle.”
Rising oil prices have sent inflation expectations higher, and the bond market is keeping a close eye on crude prices, as is the stock market. West Texas Intermediate crude futures contract up 8.8% for the week, at $113.90 a barrel on Friday.
Oil heats up
“It looks like oil north of $100 has some staying power,” said Jeffery of BMO.
Michael Arone, chief investment strategist at State Street Global Advisors, said the pattern between stocks and oil will continue to matter. As oil prices spike recently, stockpiles have weakened, he said. Meanwhile, as crude oil fell, stockpiles were able to recover,
“It looks like this week it’s been a bit more pronounced as oil prices are going up pretty strongly,” Arone said. “It has this interconnectedness with a number of things – feelings about the Ukraine conflict, how the situation unfolds, inflation and finally how belligerent or dovish the Fed is. think it emerged as one of the binary proxies for these other factors in the marketplace.”
“It’s just a barometer for other things – the Ukraine conflict, inflation and the Fed,” he said.
Arone said when investors anticipate some solution 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 margin, investors are getting comfortable with the possible outcome.”
Arone said the stock market fundamentals were better than some investors expected. As inflation picks up, industry revenues may also go higher.
“Everybody knows the multiples have shrunk, stocks have gotten cheaper, but one thing that puts investors off track is that top sales have this correlation with inflation,” he said. “Corporate Profit and CPI [the consumer price index] is the connection type. You have multiple contracts but your earnings estimate is growing. “
The stock is well positioned, Arone said, and investors are feeling more comfortable that there will be a favorable resolution to the fight.
“If we can get through the Ukraine conflict and some concerns about the Fed and inflation, then I think the fundamentals are fine,” he said.
8:30 a.m. Previous economic indicators
9:00 am S&P / Case-Shiller house prices
9:00 am FHFA house prices
9:00 am in New York, Fed President John Williams
9:30 a.m., Atlanta Fed President Raphael Bostic
10:00 am Consumer confidence
10:00 am JOLTS
10:30 a.m. Philadelphia Fed President Patrick Harker
8:15 am ADP jobs
8:30 a.m. Real GDP
9:15 a.m., Richmond Fed President Tom Barkin
1:00 p.m. Kansas City Fed President, Esther George
8:30 a.m. Initial Requests
8:30 am Personal income
8:30 am PCE deflator
9:00 am at New York Fed’s Williams
9:45 am Chicago PMI
Monthly car sales
8:30 a.m. Jobs
9:05 a.m. Chicago Fed President Charles Evans
9:45 am Manufacturing PMI
10:00 invent ISM
10:00 am Construction spending