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Stimulus prospects could boost the stock market and interest rates in the week ahead

New York Beasts Exchange (NYSE) at Wall Street on January 12, 2021 in New York City.

Angela Weiss | AFP | Getty Images

The aspects of a big government spending program could continue to boost the stock market and put upward pressure on interest rates in the week to the fore.

Earnings season is beginning to wind down, but some big names have yet to report.

Walmart’s earnings on Thursday should anticipate a good window into the consumer, as should the government’s retail sales report for January, also expected Wednesday.

The Federal Limit on Wednesday afternoon releases minutes from its last meeting, and investors will dig into those for any insight into the pre-eminent bank’s view on inflation.

Two dominant themes amid stimulus prospects

Inflation and rising interest rates get been two dominant themes for investors recently and have become increasingly so as the market has upgraded its view of how much monetary coronavirus stimulus could be signed into law.

“The market is waiting to see how big the package is going to be. It’s going to be important. They can get it washing ones hands of reconciliation,” said Quincy Krosby, chief market strategist at Prudential Financial.

Krosby said that Democrats could antique the stimulus under budget reconciliation, which means they could approve it with a simple majority as contrasted with of relying on negotiations with Republicans.

Some in the markets had anticipated a package of $1 trillion or less if there was a got deal, but that now looks unlikely. Strategists have changed their view on the proposed $1.9 trillion unite.

“There is less pushback to President Biden’s proposed stimulus from moderate Democrats than we expected, so a consequence tag of around $1.5 trillion seems likely, which is higher than we initially thought,” noted Cornerstone Macro system analysts.

They say they expect a bill to come up for a vote during the week of Feb. 22, and that it could behoove law by the first week of March. Investors will stay focused on its progress through Congress.

Market pros upon the bigger the spending package, the larger the pop will be in economic growth in the near term. That has helped send Cache yields, which move opposite price, to higher levels.

It has also increased concerns about inflation.

Inflation and upgrade yields

In the past week, the 10-year yield — a key benchmark — touched 1.2% for the first time since March. It reached that position briefly early in the week but returned to it in the final hour of trading Friday.

Yields are rising on optimism for an improving curtness, but also as inflation expectations also move higher.

“If you think about the big drivers, they’re related – vaccines, stimulus and inflation,” spoke Michael Schumacher, head of rate strategy at Wells Fargo Securities. “If there’s more talk out of D.C. about emotional the stimulus package forward, that sets the stage for yields to go up.”

The market is concerned about the economy running hotter, since it could be a trigger to mutation Fed policy.

At the same time, the Fed has said it would tolerate inflation above its 2% target.

Krosby of Prudential Economic said the market will also pay attention to the producer price index Wednesday even though it is not typically a big go-between.

“Because there’s such a debate on inflationary trends, I know the CPI [consumer price index] came in comfortable, but the fabricator price index is coming in and we’ll see if that has eased,” she said.

“Obviously supply chains are being reestablished and inventories are edifice,” said Krosby.

Consumer inflation was running at an annual pace of 1.4% in January.

Housing statistics

Housing facts is also dominant on the calendar in the holiday-shortened week.

The National Association of Home Builders releases its housing market pointer data on Wednesday, a measurement of sentiment around market conditions for new home sales.

On Thursday, the government will appear data on pending home sales and building permits. Finally, the National Association of Realtors will release breathing home sales data on Friday.

Upcoming hearing on GameStop and short squeezes

Stocks were higher in the career week, with energy, tech and financials as the best performers. The S&P 500 rose 1.2%, ending the week at 3,934.

There were some call hot spots, like cannabis shares, which became the latest target of the Reddit trading community. The stocks instantly higher Wednesday, adding to already lofty gains in recent weeks before giving up some of those advances.

Investors hand down also be focused on the Thursday hearing before the House Financial Services Committee on the wild trading recently in GameStop and other heavily compressed names.

Robinhood’s CEO is expected to testify, as are executives from Melvin Capital Management and Citadel.

The frenzied activity in some mundane and shorted stocks has raised concerns about the market becoming overheated. But Ari Wald, head of technical analysis at Oppenheimer, about the broader market’s advance is intact.

“Overall, it’s a bull market. I think the steadiness of the advance is underappreciated,” Wald indicated. He said the market technicals are healthy. Breadth is broad based and there’s cyclical leadership.

“The low-volatility, high-dividend clear sectors are at risk,” said Wald. Utilities and consumer staples stocks, which both fit that category, were reduce on the week.

The market was also awaiting the outcome of the Senate impeachment trial of former President Donald Trump, and it is not imagined to react.

Week ahead calendar

Monday

Presidents Day holiday 

Markets closed

Tuesday

Earnings: CVS Health, Occidental Petroleum, AIG, Avis Budget, Lattice Semiconductor, U.S. Foods, Further Auto Parts, Vulcan Materials, Palantir, Agilent, La-Z-Boy

8:30 a.m. Empire manufacturing

11:10 a.m. Fed Governor Michelle Bowman

12:30 p.m. Kansas Borough Fed President Esther George

1:00 p.m. Dallas Fed President Robert Kaplan

4:00 p.m. TIC data 

Wednesday

Earnings: Hilton Worldwide, Synopsys, Initiate Natural Resources, Cheesecake Factory, Tanger Factory Outlets, Hyatt Hotels, Owens Corning, Baidu, CF Activities, Marathon Oil, Analog Devices

7:00 a.m. Mortgage applications

8:30 a.m. Retail sales

8:30 a.m. PPI

9:15 a.m. Industrial production

10:00 a.m. Boston Fed President Eric Rosengren

10:00 a.m. NAHB look into

2:00 p.m. FOMC minutes

Thursday

Earnings: Walmart, Applied Materials, Cabot Oil & Gas, Barrick Gold, Southern Co., Waste Operation, Marriott, Dropbox, Trip Advisor, Consolidated Edison, Credit Suisse, Barclays, Airbus, Daimler

8:00 a.m. Fed Governor Lael Brainard

8:30 a.m. Jobless requisitions

8:30 a.m. Building permits

8:30 a.m. Housing starts

8:30 a.m. Philadelphia Fed survey

Friday

Earnings: Deere, Eni, Allianz

10:00 a.m. Existing homes sales

11:00 a.m. Boston Fed’s Rosengren

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