Traders on the floor of the New York Stock Exchange.
The trading pattern of the past two weeks – especially alongside cryptocurrency movements – suggests that stocks may continue to be volatile over the coming week.
Investors are watching bitcoin’s wild swings and trying to determine if tech stocks can gain traction after an attempted rally last week.
The Dow and S&P 500 were lower last week, but the Nasdaq was slightly higher, helped by a positive move in tech, as well as buying large-cap biotech and growth names like Alphabet, Facebook and Netflix, members of FANG.
A sharp drop in bitcoin after China’s announcement of new regulations has spoiled the mood for risky assets over the past week. The United States has also called for stricter compliance with the IRS. In addition, on Friday, China announced that it would crack down on bitcoin mining and trading.
“What’s interesting is that the market is intimidated by where bitcoin is going,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. Bitcoin fell 30% on Wednesday, to around $ 30,000. Although it came back above $ 42,000, it slipped again on Friday.
The cryptocurrency fell about 12% on Friday night, hovering around $ 35,000, according to Coin Metrics.
“Bitcoin is an example of the risk appetite,” Boockvar said. “This tells you that the stock market is more on uneven ground if we are dragged down by bitcoin.”
There is some key data in the coming week. Consumer confidence, data on home prices and new home sales are released on Tuesday. Durable goods will be released on Thursday and the Consumer Sentiment Report will be released on Friday.
But the most important data will be personal income and expenditure data, which includes the personal consumption expenditure price deflator, the Fed’s preferred measure of inflation.
“The key to next week will be the inflation numbers. The inflation numbers are fast becoming the new payroll numbers in terms of market performance,” Boockvar said. “What will also be interesting is inside the consumer confidence figures, this is where inflation expectations are going.”
The Consumer Price Index was surprisingly hot when it was released last week, showing core inflation at an annual rate of 3% in April. The core PCE price index rose 1.8% year over year in March.
Over the coming week, the earnings season draws to a close, but reports from retailers like Best Buy, Costco and Nordstrom continue to be reported. NVIDIA and Dell also report.
No correction yet
As the market collapsed this month, dip buyers entered the downside and got some good deals.
Some strategists do not see a correction yet, although setbacks could continue.
“For me, my framework is that we can only get a 10% correction when we have a decline in liquidity, when we have a policy tightening,” said Barry Knapp, managing partner of Ironsides Macroeconomics. “In all the small disturbances, we get around 4% to 6% pullback.
Knapp said investors are too worried that higher interest rates are a problem for tech companies. “You should be in the cyclical parts of technology,” he said. Knapp noted that sub-sectors like semiconductors and software are expected to do well with the economic reopening and the rebound in global manufacturing.
Tech squeaked a slight gain last week, gaining 0.1%, but semiconductors jumped nearly 3%. Software increased 0.2%.
The Nasdaq was 0.3% higher for the week at 13,470, while the Dow was down half a percent at 34,207. The S&P 500 was down 0.4% at 4155.
The best performing sector was real estate investment trusts, up 0.9%, followed by healthcare, up 0.7%. Biotechnology was on the rise this week with the IBB iShares Nasdaq Biotech ETF, up 1.1%.
“It wouldn’t shock me if we went straight back to new heights,” Knapp said. “Part of the reason I thought we would trade in a fork was that the earnings season was over, but the net revisions are increasing.”
He said S&P 500 earnings are now expected to grow 7% more for the year than at the start of the first quarter reporting season.
Knapp expects the Fed to be able to discuss reducing its bond purchases at its Jackson Hole meeting in late summer, which is likely the trigger for a correction. Back in World War II, he said the first correction after a recession triggered the Fed’s normalization policy.
“The last cycle, we had eight,” he said. “Every attempt they made to normalize politics caused one of these risky events.”
Knapp said it was natural for investors to focus on the Fed now. “It’s a shock of uncertainty,” he said. “It will cause a correction and everyone is focusing on it. The Fed hasn’t really changed its policy from the depths of the pandemic.”
Knapp said Treasury yields fell during efforts in Washington to achieve a bipartisan plan on infrastructure spending. But he expects the market to react differently over the next two weeks as he expects those efforts to clearly fail and Democrats will focus on a big spending program that will increase the deficit.
The Bitcoin crypto craze was lifted by Washington’s big spending idea, and infrastructure spending could be positive. “The thing that was the surprise in 2021 that really drove the mania was the blue wave and then the spending explosion,” he said, noting that bitcoin gained on inflation potential and large spending deficit.
Calendar for the upcoming week
Earnings: Lordstown Motors
12:00 p.m .: Raphael Bostic, President of the Atlanta Fed
5:30 p.m. Esther George, President of the Kansas City Fed
9:00 a.m. S & P / Case-Shiller house prices
9:00 am FHFA real estate prices
10:00 am Sales of new homes
10:00 am Consumer confidence
10:00 a.m .: Randal Quarles, Vice President of the Fed, at the Senate Banking Committee
Earnings: NVIDIA, Snowflake, Bank of Montreal, Capri Holdings, Abercrombie and Fitch, Dick’s Sporting Goods, American Eagle Outfitters, Workday, Pure Storage, Designer Brands
3:30 p.m. Vice-president of the Fed Quarles
Earnings: 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 a.m. Initial jobless claims
8:30 am Durable goods
8:30 a.m. Real GDP Q1
10:00 a.m. Home sales pending
8:30 a.m. Personal expenses (PCE deflator)
8:30 a.m. Leading indicators
9:45 a.m. Chicago PMI
10:00 a.m. Consumer sentiment