Stocks got the week off to a good start, posting gains pretty much across the board Monday.
Energy, Financials and Industrials led the way higher, signaling a further reversal from Friday when mega-cap tech stocks were among the lone bright spots. This seems to suggest traders may feel like they over reacted to last week's Federal Reserve meeting.
With several central bank officials on the docket to speak this week, including Chair Jerome Powell in front of Congress, it seems like the Fed is likely to have an outsized role in market sentiment in the near future. It's not entirely clear if this is what was intended, but now that they've got the market's attention, it may prove difficult to get traders focused on something else.
The Fed rattled markets last week when the central bank's economic projections showed two interest-rate increases in 2023.
While this may seem relatively minor, and possibly even to be expected as the economy continues to recover, the Fed introduce the idea that it will be quick to act to stem inflation, potentially to the detriment of the broader recovery. This is demonstrated by the increase in interest rates on short-term bonds and a drop in rates on longer-term borrowings.
It is not clear if this was the Fed's intention, but it seems like we may get a break from the inflation narrative for a while in any case not that there's a sense that the Fed is on the case.
This conflict, between being quick to act against inflation versus letting the recovery play out, is likely to be with us for some time, so traders should get ready for continued volatility around Federal Reserve meetings, as well as the potential return of the "bad news is good news trade." This is when market's rally on weaker-than-expected economic data is it likely means the Fed won't need to act as quickly, while better-than-expected news can spark a round of selling.
With that in mind, this week's reports on income, spending and PCE prices are the first chance to put this new regime to the test. Expectations are for price increases to have moderated month-over-month, with income ticking lower and spending rising less than it did last month. This may signal that the "transitory" inflation may already be starting to wane as we move past the initial reopening shortages and stimulus checks.
Housing data earlier in the week will be another place where some signs of moderation may actually be welcome as prices have soared recently with sales of both new and existing homes seemingly constrained by the number of homes available for sale.
Economic Events this Week
- 10:00 a.m. - Existing Home Sales
- 10:00 a.m. - New Home Sales
- 10:30 a.m. - EIA Crude Oil Inventories
- 8:30 a.m. - Durable Goods Orders
- 8:30 a.m. - Initial Claims
- 8:30 a.m. - Personal Income
- 8:30 a.m. - Personal Spending
- 8:30 a.m. - PCE Prices
Earnings Reports this Week
Before the bell: KFY, PLUG
After the bell:
Before the bell: INFO, PDCO, WGO
After the bell: FUL, KBH, SCS
Before the bell: ACN, DRI, GMS, RAD, WOR
After the bell: BB, CAMP, FDX, NKE, PRGS, SNX
Before the bell: APOG, KMX, JKS, PAYX
Sector and Industry Sentiment
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