Anyone who likes a lot of action can start right here. This coming week promises a smorgasbord, testing the market’s mettle with
indices at or near record highs.
There’s a Fed meeting, a truckload of key earnings reports — including Apple Inc. (NASDAQ: AAPL) and Facebook Inc (NASDAQ: FB) — and monthly jobs data. The U.S. government has to decide by the end of the
week whether to stay open. And to top everything off, French voters go back to the polls this coming weekend to choose a president.
In other words, there’s something for everyone, which means that volatility, which began to climb a little Friday from recent lows,
could show more life.
The Nasdaq surged late last week on positive earnings results from Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) and Amazon.com, Inc. (NASDAQ: AMZN), and earnings in general have been mostly strong. That allowed the markets to
plow ahead to the best weekly showing of the year for some indices as investors focused mainly on Q1 corporate results. Earnings
are probably going to be the key driver again this coming week, and the real fun starts Tuesday morning with Archer Daniels
Midland Company (NYSE: ADM), Merck & Co.,
Inc. (NYSE: MRK), Pfizer Inc. (NYSE:
PFE), and ConocoPhillips (NYSE: COP). Next comes Apple (AAPL) after Tuesday’s close. Facebook (FB) is
Wednesday afternoon. Keep an eye on AAPL and FB to see if they can emulate some of the other recent strong tech company
earnings.
The markets received a boost last week from French election results, which delivered as many investors had hoped with a centrist
candidate getting the most votes in the first round. But that was just the first round, and attention turns back to the French as
the May 7 election approaches. Polls late last week showed centrist Emmanuel Macron leading right-wing rival Marine Le Pen. But
memories of last year’s surprising Brexit and U.S. election votes could mean caution in the markets, as traders may want to avoid
taking major positions ahead of the vote.
Before that, the Fed meets Tuesday and Wednesday, and futures prices show virtually no chance of a rate hike. By June, however,
the futures market projects a close to 70% chance of an increase in rates. While this week’s Fed meeting doesn’t appear likely to
result in any fireworks, investors would be wise to not get complacent, because all Fed meetings are “live,” and the Fed’s
statement Wednesday afternoon could be worth a close watch for anyone trying to read the tea leaves.
Ahead of the mid-June meeting, the Fed gets a look at two monthly jobs reports, with the April data due this Friday and the May
report right before the June gathering. The March report delivered disappointing jobs growth of less than 100,000 positions, but
the thought now is that might have been weather-related. A warm January and February might have triggered some construction
industry job growth a little ahead of schedule, while a cold March might have hurt other industries. Perhaps the April report could
iron things out a little, and check closely for any possible revisions to the March number.
Another key data point the Fed is said to watch is PCE prices, and the March reading on that comes out Monday, along with March
construction spending and the ISM Index for April. Auto and truck sales data hit the market on Tuesday, and factory orders data are
due Thursday. All told, it’s a busy week on the data front.
As the French election and the U.S. Congress decision on keeping the government open — which it put off for a week with a vote
last Friday — both approach near the end of this coming week, it might be interesting to see how currencies and bond prices move.
The euro was up vs. the dollar as of midday Friday, but any sign of movement in the polls toward the right-wing candidate might
cause the euro to weaken. U.S. 10-year Treasuries steadied near 2.31% late Friday, but signs of possible contention in Congress
later this week could put pressure on yields. Still, there’s a lot happening between now and then, so investors might not want to
miss any of the action.
A Closer Look at Weak Q1 GDP
The headline Q1 GDP estimate of 0.7% was below most analyst estimates, and — if it stands at this level through the next two
government projections — would be the weakest in years. Looking beneath the headline number, it appears a number of factors played
into the weakness. The main drag on growth was the change in private inventories, which subtracted 0.93 percentage points,
Briefing.com noted. A downturn in government spending subtracted 0.30 percentage points. Spending on goods was up 0.1%, while
spending on services increased only 0.4%. The key takeaway, Briefing.com said, was that growth in personal consumption expenditures
(PCE) increased just 0.3%, the weakest in more than seven years.
On the Other Hand, There’s Earnings
While the GDP estimate seemed to point toward a slowing economy, the stock market mostly ignored the report, in part because
anticipation of a weak result was somewhat baked in, and because earnings appear to tell a different story. Earnings, more than the
hard data, seem to reflect some of the so-called “soft data” like business and consumer confidence readings, which mostly moved
higher in Q1. Housing numbers also have been resilient. All this makes Friday’s payrolls report arguably take on additional
importance as investors try to get a better sense of economic health. Watch the wages data, because rising wages can really help
play into consumer spending and maybe contribute to more robust Q2 GDP growth.
One More Word on Consumers
At times like these, it sometimes helps to look across the lake from here in Chicago over to Michigan. The University of
Michigan released its final April consumer sentiment report Friday, which showed the headline index rising to 97 from 96.9 in
March. From a high-level standpoint, sentiment looks good, the survey said, but the political divide that was so evident in last
year’s tough-fought election seems to continue playing out in consumers’ outlook. “Consumer sentiment continued to travel along the
high plateau established following Trump's election...,” said Richard Curtin, the survey’s chief economist, in a press release.
“There was widespread agreement among consumers on their very positive assessments of the current state of the economy as well as
widespread disagreement on future economic prospects. Although the partisan divide has slightly narrowed in recent months, it still
reflects a very pessimistic economic outlook among Democrats and a very optimistic outlook among Republicans.”
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