Traders on the floor of the New York Stock Exchange.

Source: NYSE

Following the disappointing April employment report, the market focus will shift directly to inflation in the coming week.

The tech tug-of-war will continue to be a dominant force in equity markets after Friday’s rebound more than halved the week’s losses in the S&P tech sector.

The April employment report was extremely disappointing with only 266,000 jobs created, well below the 1 million expected. Friday’s report questioned some investors’ expectations that the Fed would scale back its so-called quantitative easing purchases on bonds later this year.

If inflation data looks hot when the consumer price index is released on Wednesday, it could spark debate over whether the Fed needs to tighten policy sooner than it wants. Currently, the market views April job data as a skewed one-off report.

“It’s all about the inflation numbers. It’s about the transitory nature and how far we’ll see them,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. If month on month earnings are picking up pace and we see 0.3% to 0.4%, it is not temporary and it is a problem for the Fed. “

Economists expect the CPI to rise 0.2% in April versus March, after rising 0.6% in the previous month. However, according to the Dow Jones, the CPI should look bubbly, rising 3.6% yoy. This corresponds to 2.6% in the previous month. Excluding food and fuel, the CPI is expected to rise 0.3% m / m.

The central bank has claimed that the rise in inflation is expected to be temporary.

Several Fed spokesmen are on the calendar, including Vice-Chair Richard Clarida, who speaks half an hour after the CPI press on Wednesday. Other representatives include the Governor of the Federal Reserve Board, Lael Brainard, the New York President John Williams and the President of the Dallas Fed, Rob Kaplan.

The producer price index will be reported on Thursday and this should confirm a trend towards higher prices shown in corporate earnings releases. Another key data point, retail sales, will be released on Friday.

Boockvar said the retail sales report wasn’t that important as it was artificially amplified by one-time stimulus testing.

“It’s like the steroid era of baseball,” he said. “Who knows how many home runs it would have hit without a suggestion.”

Technical battlefield

The S&P 500 and Dow finished the past week up. The S&P rose 1.2% to 4,232 and 2.7% to 34,777. However, the tech-laden Nasdaq fell 1.5% to 13,752, even if it rose 0.9% on Friday.

Fears of inflation continued to grow on the commodities market.

Copper futures, like wood futures, hit record highs, rising 13% over the past week. Corn futures rose 8.6% last week, hitting their highest level since 2013.

West Texas Intermediate crude oil futures rose 2% to $ 64.90 a barrel.

The 10-year note yield, which is moving against the price, was 1.55% after 1.63% a week ago.

Commodities made equity markets rise this week, with the S&P energy sector by far the best performing, up 8.9%. Materials rose 5.9%, followed by financials, which rose 4.2%. Industrial stocks rose 3.4%. But the S&P tech sector fell 0.5% over the course of the week, even if it rose 0.8% on Friday.

“I think one thing people overlook is that the tech sale we’ve seen in the past few days isn’t just a reaction to the negative earnings price reactions we’ve seen from certain tech names,” said Julian Emanuel. Chief strategist for stocks and derivatives at BTIG.

“But it’s also this idea that in a world where we think capital gains taxes may rise, that’s where the capital gains reside,” he added. “Therefore, on that basis, they are likely to come under increasing pressure.”

President Joe Biden has proposed raising capital gains tax to 39.6% for taxpayers earning more than $ 1 million. That is more than the current maximum rate of 20%.

Emanuel said the upcoming May 17th federal income tax filing deadline could also put pressure on the technology as investors may sell winners to pay their taxes.

“With the tax bill due on May 17 for the 2020 calendar year, people will only be using it as an excuse related to higher capital gains taxes to sell these stocks to pay their tax bill,” Emanuel said. “I think people are overlooking this as part of the reason.”

Boockvar said tech names could also face further headwinds from higher interest rates, especially if inflation data is hotter than expected.

“I think the past few weeks have shown that the foam comes from the most expensive part of technology and the revenue for the big cap names is as good as it gets in terms of growth rates. The market is telling you that.” , he said . “If you get another rate hike, that’s a headwind.”

The earnings season continues into the coming week, although most of the rush for the quarter is over. Disney, Marriott, Wynn Resorts, and Airbnb are among the companies that should provide a glimpse into the economic reopening.

Calendar for the week ahead

Monday

Merits: Marriott, BioNTech, Jacobs Engineering, Simon Property Group, International Flavors and Fragrances, Wynn Resorts, SmileDirectClub, Duke Energy, Air Products, Tyson Foods, Party City, Energizer, Coty

Tuesday

Merits: Electronic Arts, Chesapeake Energy, Hanesbrands, Aramark, International Gaming Technology, Palantir Technologies, Perrigo, Unity Software, Opendoor Technologies, Kinross Gold, Lemonade, Vizio

6:00 a.m. NFIB poll

10:00 JOLTS

10:30 am John Williams, President of the New York Fed

12:00 p.m. Fed Governor Lael Brainard

1:00 p.m. Mary Daly, San Francisco Fed President

1:15 p.m. Raphael Bostic, Atlanta Fed President

2:00 p.m. Patrick Harker, Philadelphia Fed President

Wednesday

Merits: Toyota, Wendy’s, Fossil, Bumble, Allianz, Jack in the Box, Vroom, SoftBank, Sonos, Bayer, 1Life Healthcare

8:30 a.m. CPI

9:00 am Richard Clarida, vice chairman of the Fed

2 p.m. Fed budget

1:00 p.m. Bostic from Atlanta Fed

1:30 p.m. Harker of the Philadelphia Fed

Thursday

Merits: Walt Disney, Airbnb, Plantronics, Burberry, Casper Sleep, Brookfield Asset Management, Türöffner, Petrobras, Aurora Cannabis, Alibaba

8:30 am Initial jobless claims

8:30 a.m. PPI

1:00 p.m. Fed Governor Christopher Waller

4:00 p.m. James Bullard, President of the St. Louis Fed

Friday

Merits: Honda, Rosneft

8:30 a.m. retail sale

8:30 a.m. import prices

9:15 a.m. industrial production

10:00 am consumer mood

10:00 am business inventories

1:00 p.m. Robert Kaplan, President of the Dallas Fed