Traders on the floor of the New York Stock Exchange.
Source: NYSE
The trading pattern of the past two weeks – especially alongside movements in the cryptocurrency – suggests that stocks could continue to be volatile for the week ahead.
Investors are watching the wild swings in Bitcoin, trying to assess whether technology stocks can gain ground after attempting a rally last week.
The Dow and S&P 500 were lower for the past week, but the Nasdaq was slightly higher, thanks to a positive tech move as well as buying biotech and big-cap growth names like FANG members Alphabet, Facebook and Netflix was supported.
A sharp slump in Bitcoin after China announced new regulations clouded sentiment for risk-weighted assets last week. The US also called for stricter compliance with the IRS. In addition, China said on Friday it would crack down on Bitcoin mining and trading.
“What is interesting is that the Bitcoin market is being bullied,” said Peter Boockvar, chief investment officer at the Bleakley Advisory Group. Bitcoin fell up to 30% on Wednesday to around $ 30,000. Although it rebounded to over $ 42,000, it slipped again on Friday.
The cryptocurrency was down 9% late Friday, trading at $ 36,000, according to Coin Metrics.
“Bitcoin is a figurehead for risk appetite,” said Boockvar. “It shows you that the stock market is more uneven when we get carried away by Bitcoin.”
We have some important data in the coming week. Consumer confidence, home price data and new home sales will be released on Tuesday. Durable goods will be released on Thursday and the consumer sentiment report will be released on Friday.
The most important data, however, will be personal income and expenditure data, including the price deflator for personal consumption expenditure, the Fed’s preferred measure of inflation.
“The key to next week will be the inflation numbers. The inflation numbers will now become the new wage numbers in terms of market performance,” Boockvar said. “It will also be interesting that the inflation expectations are within the consumer confidence figures.”
The consumer price index was surprisingly hot when it was released last week, showing core inflation at 3% yoy in April. The PCE core price index rose 1.8% year over year in March.
The earnings season is coming to an end next week, but reports from retailers like Best Buy, Costco, and Nordstrom continue. NVIDIA and Dell also report.
No correction yet
As the market deteriorated this month, Dip shoppers have stepped into the dips and made perceived bargains.
Some strategists see no correction just yet, although the pullbacks may continue.
“For me, my framework is that we can only get a 10% correction if we have a cash reserve, if we have a policy tightening,” said Barry Knapp, Managing Partner of Ironsides Macroeconomics. “With each of the small disturbances, we get a withdrawal of 4% to 6%.
Knapp said investors are too annoyed that higher interest rates are a problem for tech companies. “You should be in the cyclical areas of technology,” he said. Knapp noted that subsectors such as semiconductors and software should cope well with the economic reopening and global manufacturing recovery.
Tech rose slightly over the past week, gaining 0.1%, while semiconductors were up nearly 3%. Software rose 0.2%.
The Nasdaq rose 0.3% to 13,470 for the week while the Dow fell half a percent to 34,207. The S&P 500 fell 0.4% to 4,155.
The best-performing sector was real estate mutual funds, up 0.9%, followed by healthcare, up 0.7%. Biotech was up 1.1% for the week on the IBB iShares Nasdaq Biotech ETF.
“I wouldn’t be shocked if we went straight back to new heights,” said Knapp. “Part of the reason I thought we were trading in a range was because the winning season was over but net revisions are rising.”
He said earnings for the S&P 500 for the year are expected to be 7% higher than at the start of the first quarter reporting season.
Knapp believes the Fed could discuss reducing bond purchases at its Jackson Hole meeting in late summer, and that is the likely trigger for a correction. Going back to World War II, he said the first correction after a recession was triggered by the Fed’s normalization policy.
“We had eight of them in the last cycle,” he said. “Any attempt to normalize politics created one of these risky events.”
Knapp said it was natural for investors to focus on the Fed now. “It’s an uncertainty shock,” he said. “It will make a correction and everyone is focused on it. The Fed hasn’t really changed its policy since the depths of the pandemic.”
Knapp said government bond yields fell during Washington’s efforts to reach a bipartisan infrastructure spending plan. However, he anticipates the market will react differently over the next two weeks as he anticipates these efforts will clearly fail and Democrats will focus on a large spending program that will increase the deficit.
The Bitcoin crypto craze was lifted by the idea of big spending from Washington, and infrastructure spending could be positive. “The surprise in 2021 that really sparked the madness was the blue wave and then the spending breakout,” he said, noting that Bitcoin was won due to the inflationary potential and high deficit spending.
Calendar for the week ahead
Monday
Merits: Lordstown Motors
12:00 pm Raphael Bostic, Atlanta Fed President
5:30 p.m. Esther George, Kansas City Fed President
Tuesday
Merits: Nordstrom, Toll Brothers, Intuit, Agilent, Autozone, Cracker Barrel, Pershing Square Holdings, Urban Outfitters, Zscaler
9:00 am S&P / Case-Shiller property prices
9:00 a.m. FHFA real estate prices
10:00 am Sale of new houses
10:00 am Consumer Confidence
10:00 am Randal Quarles, vice chairman of the Fed, on the Senate Banking Committee
Wednesday
Merits: NVIDIA, Snowflake, Bank of Montreal, Capri Holdings, Abercrombie and Fitch, Dicks Sporting Goods, American Eagle Outfitters, Labor Day, Storage Only, Designer Brands
3:30 p.m. Fed Vice Chairman Quarles
Thursday
Merits: Best Buy, Salesforce.com, Costco, Dell Technologies, Box, Ulta Beauty, VMWare, Autodesk, Lions Gate, Canadian Imperial Bank, Toronto Dominion, Burlington Stores, Dollar General, Dollar Tree, Royal Bank of Canada, Medtronic
8:30 am Initial jobless claims
8:30 a.m. consumer goods
8:30 am Real GDP for the first quarter
10:00 a.m. Pending home sales
Friday
8:30 a.m. Personal Expenses (PCE Deflator)
8:30 a.m. advance notice
9:45 am Chicago PMI
10:00 am consumer mood
