Investors are preparing for a barrage of economic data and business earnings reports, setting up the stock market for a big week.
Larry Adam, Raymond James’ chief investment officer, outlined the top five items to monitor this week that might have a significant impact on stock market values.
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- 1 1. “Powell’s press conference could bring fireworks.”
- 2 2. “All eyes on the quarterly refunding announcement.”
- 3 3. “Will earnings growth deliver to keep the rally going?”
- 4 4. “Manufacturing and service activity improving?”
- 5 5. “Will the labor market’s resilience last?”
From corporate profits to the April jobs report, Adam recommends things to watch over the next five days.
1. “Powell’s press conference could bring fireworks.”
Adam suggests that Powell will probably adhere to his ‘data dependence’ stance during his speech. He will likely reiterate that interest rates are currently at their highest point and may need to remain restrictive for a bit longer. However, Powell will have to address inquiries regarding the recent GDP report, which indicated slower growth and hotter inflation. Additionally, he will need to clarify whether the three anticipated rate cuts mentioned in the March dot plot are still applicable.
Powell could provide additional information regarding the Federal Reserve’s plans to reduce its balance sheet, a move that could potentially influence stock prices.
2. “All eyes on the quarterly refunding announcement.”
On Monday, the Treasury Department will unveil its borrowing requirements for the next quarter, while also providing information on the breakdown of issuance between Treasury bills and coupons.
Tax receipts have experienced a significant surge this year, resulting in the Treasury’s operating account being “flush with cash” at $955 billion. This indicates that there is less urgency for the Treasury to issue a large number of new bonds this quarter, a development that would be well-received by the market.
“The good news is that there is still a strong demand from investors for Treasurys. However, the bad news is that the ongoing deficits of approximately $2 trillion will result in a significant increase in net Treasury supply. This means that the market will have to absorb a substantial amount of new Treasury securities,” Adam explained.
3. “Will earnings growth deliver to keep the rally going?”
This week is jam-packed with earnings releases, making it one of the busiest weeks for investors. Over 170 S&P 500 companies are gearing up to report their first-quarter earnings results. Among the big players, Amazon is scheduled to release their earnings on Tuesday, while Apple will follow suit on Thursday.
S&P 500 earnings are currently on track to increase by approximately 1.6% compared to the previous year. This growth is primarily attributed to the exceptional performance of mega-cap tech companies. As we move forward, investors will be eagerly awaiting insights and guidance from company CEOs, as their attention shifts towards the remainder of the year.
Adam believes that in order for the market to continue to rise from its current levels, earnings will need to play a crucial role. With valuations already trading near the upper end of their 20-year range, it will be the performance and profitability of companies that will act as the catalyst for further market growth.
4. “Manufacturing and service activity improving?”
The ISM Manufacturing data released last month caught everyone by surprise as it showed a sudden jump into expansion territory. This was the first time since October 2022 that the manufacturing sector had seen such growth. Now, we eagerly await the release of new data from the index on Wednesday, with hopes that the expansion will continue for a second consecutive month. In addition, the ISM Services data will be released on Friday, and it is anticipated to show continued expansion for the 15th month in a row. The positive trend in both sectors is a promising sign for the overall health of the economy.
Adam highlighted the significance of the services sector in the economy, emphasizing its larger contribution compared to manufacturing. He pointed out that these figures indicate a growing economy, albeit at a more moderate rate.
5. “Will the labor market’s resilience last?”
Investors will closely watch the April jobs report set to be released on Friday. According to economists, the median forecast predicts that 250,000 jobs will be added to the economy. Furthermore, if the unemployment rate remains below 4%, it will equal the second longest consecutive streak below 4% on record.
However, indications of a decelerating job market are becoming apparent.
“The job market is facing significant challenges as both the employment subsectors within ISM Manufacturing and Services readings are currently in contraction territory. Additionally, the number of job openings is nearing its lowest level since March 2021. In light of these circumstances, the upcoming jobs report will offer valuable insights into the overall strength of the labor market,” Adam commented.
