Stocks could see more turmoil next week, especially if bond yields continue to climb
Traders on the floor of the NYSE, March 28, 2022.
After a week of extraordinary turbulence, equities are expected to remain volatile as investors await further inflation data and monitor bond yield developments.
The big report for the markets is Wednesday’s April Consumer Price Index. Economists expect inflation to be high, but it is expected to ease from March’s 8.5% year-on-year pace. A second inflation report, the Producer Price Index, which is a wholesale price indicator, is released on Thursday.
“I think it’s going to be a hot number but not as hot as last month,” said Mark Zanidi, chief economist at Moody’s Analytics. Zandi expects headline CPI to rise 0.3% for the month or 8.2% year-on-year.
Investors are focused on inflation and other key reports that will influence the Federal Reserve as it continues its interest rate hikes.
The Fed raised its target federal funds rate by half a percentage point on Wednesday and signaled that it may follow up with further hikes of the same magnitude. Fed Chairman Jerome Powell after the meeting said he expects the economy could see a “soft or soft” landing.
“I think the two big concerns for the market are inflation and how hard the Fed will try to control it,” said Art Hogan, chief market strategist at National Securities. Hogan said investors are also concerned about China’s economy as it locks down to fight Covid and how that downturn could impact the rest of the world.
Hogan said if the CPI comes in as expected, it could bring some stability to stocks and bonds as it looks like inflation has peaked by then.
Stocks have been extremely volatile over the past week, seeing large intraday swings back and forth. The S&P 500 on Friday afternoon was down just 0.7% for the week.
Energy was by far the best performing sector, rising 9% over the week. REITs were the worst performers, down more than 4.6%, followed by consumer discretionary, down 4%.
Stock investors also eyed the bond market, where yields rose as bonds sold off.
The 10-year Treasury yield crossed 3% for the first time since late 2018 last week, and on Friday it was at 3.12%. Rising 10-year yields had a grip on equities, especially growth and technology, during its rapid upward move.
The benchmark 10-year index was around 1.5% at the start of the year. Many credit rates are tied to it, including mortgage rates.
“If people find out that inflation is peaking, and you could argue that the 10-year yield won’t necessarily peak, but stop going parabolic…that’s what could lead the public to slow the sale,” Julian Emanuel said. , Head of Equity, Derivatives and Quantitative Strategy at Evercore ISI.
Emanuel said retail investors have been heavily invested in growth names. These stocks do best when money is cheap.
“The bond market sets the tone here,” he said. But he expects the stock market to be bottoming out. “What we’ve seen is both bullish and bearish volatility in stocks…this week and it’s the start of a bottoming process.”
Some technical analysts have said stocks could fall further if the S&P returns to Monday’s low of 4,062 and stays there.
T3Live.com partner Scott Redler has targeted 3,850 on the S&P as the next stop lower, should the index break Monday’s low.
“So far it looks like every rally where you can get an oversold bounce has been sold,” he said. “I think the weekend news is going to play a part in Monday’s emotional opener.”
He said there might be some news on Ukraine, since it is Victory Day in Russia, and Russian President Vladimir Putin is expected to speak.
Redler said Microsoft and Apple could have a big impact on trading next week. If Apple breaks support at around $150 and Microsoft breaks $270, a level it is holding, the two biggest stocks could sweep the S&P 500 below 4,000.
“If they break those levels, it will add grease to the wheels and take the market to new lows. This could bring us closer to a tradable low,” he said.
He said if Microsoft broke through the $270 level, its chart would complete a negative head and shoulders formation that could signal further weakness in the stock.
Calendar for the coming week
Earnings: Coty, Elanco Animal Health, Duke Energy, Palantir Technologies, Viatris, Hilton Grand Vacations, Tyson, Tegna, BioNTech, Lordstown Motors, Energizer, Him & Hers Health, 3D Systems, Vroom, AMC Entertainment, IAC/Interactive, Brighthouse Financial, XPO Logistics, ThredUp, Equitable Holdings, Novavax, Simon Property, International Flavors and Perfumes, Equitable Holdings, Suncor Energy
8:45 a.m. Raphael Bostic, Atlanta Fed President
10:00 a.m. Wholesale trade
2:00 p.m. Survey of senior loan officers
Earnings: Bausch Health, Warner Music Brink’s, TransDigm, Edgewell 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
6:00 a.m. NFIB
7:40 a.m. New York Fed President John Williams
9:15 a.m. Tom Barkin, Richmond Fed President
1:00 p.m. Fed Governor Christopher Waller and Minneapolis Fed President Neel Kashkari
3:00 p.m. Loretta Mester, Cleveland Fed President
7:00 p.m. Raphael Bostic of the Atlanta Fed
Earnings: Walt Disney, Beyond Meat, Copa Holdings, Toyota, Performance Food Group, Wendy’s, Yeti, Krispy Kreme, Fossil, Bumble, Sonos, Rivian Automotive, Vacasa, Marqueta, Perrigo
12:00 p.m. Atlanta Fed Bostic
2:00 p.m. Federal Budget
Earnings: Softbank, Allianz, Siemens, Six Flags, Tapestry, US Foods, CyberArk Software, Squarespace, WeWork, Brookfield Asset Management, Poshmark, Affirm Holdings, Motorola Solutions, Toast, Vizio
8:30 a.m. Initial Claims
4:00 p.m. Mary Daly, President of the San Francisco Fed
8:30 a.m. Import prices
10:00 a.m. Consumer Sentiment