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Stimulus prospects could boost the stock market and interest rates in the week ahead

 

The prospects of a big government spending program could continue to boost the stock market and put upward pressure on interest rates in the week ahead.

 

Earnings season is beginning to wind down, but some big names have yet to report.

 

Two dominant themes amid stimulus prospects

 

Inflation and rising interest rates have been two dominant themes for investors recently and have become increasingly so as the market has upgraded its view of how much fiscal coronavirus stimulus could be signed into law.

 

“The market is waiting to see how big the package is going to be. It’s going to be important. They can get it through reconciliation,” said Quincy Krosby, chief market strategist at Prudential Financial.

 

Some in the markets had anticipated a package of $1 trillion or less if there was a negotiated deal, but that now looks unlikely. Strategists have changed their view on the proposed $1.9 trillion package.

 

They say they expect a bill to come up for a vote during the week of Feb. 22, and that it could become law by the first week of March. Investors will stay focused on its progress through Congress.

 

Market pros expect the bigger the spending package, the larger the pop will be in economic growth in the near term. That has helped send Treasury yields, which move opposite price, to higher levels.

 

It has also increased concerns about inflation.

 

Inflation and rising yields

 

In the past week, the 10-year yield — a key benchmark — touched 1.2% for the first time since March. It reached that level briefly early in the week but returned to it in the final hour of trading Friday.

 

Yields are rising on optimism for an improving economy, but also as inflation expectations also move higher.

 

The market is concerned about the economy running hotter, since it could be a trigger to change Fed policy.

 

At the same time, the Fed has said it would tolerate inflation above its 2% target.

 

Housing statistics

 

Housing data is also dominant on the calendar in the holiday-shortened week.

 

The National Association of Home Builders releases its housing market index data on Wednesday, a measurement of sentiment around market conditions for new home sales.

 

On Thursday, the government will issue data on pending home sales and building permits. Finally, the National Association of Realtors will release existing home sales data on Friday.

 

Upcoming hearing on GameStop and short squeezes

 

Stocks were higher in the past week, with energy, tech and financials as the best performers. The S&P 500 rose 1.2%, ending the week at 3,934.

 

There were some market hot spots, like cannabis shares, which became the latest target of the Reddit trading community. The stocks shot higher Wednesday, adding to already lofty gains in recent weeks before giving up some of those advances.

 

Investors will also be focused on the Thursday hearing before the House Financial Services Committee on the wild trading recently in GameStop and other heavily shorted names.

 

Robinhood’s CEO is expected to testify, as are executives from Melvin Capital Management and Citadel.

 

 

Week ahead calendar

 

Monday

- Presidents Day holiday

- Markets closed

 

Tuesday

- Earnings: CVS Health, Occidental Petroleum, AIG, Avis Budget,

- Lattice Semiconductor, U.S. Foods, Advance Auto Parts, Vulcan Materials, Palantir, Agilent, La-Z-Boy

8:30 a.m. Empire manufacturing

11:10 a.m. Fed Governor Michelle Bowman

12:30 p.m. Kansas City Fed President Esther George

1:00 p.m. Dallas Fed President Robert Kaplan

4:00 p.m. TIC data

 

Wednesday

- Earnings: Hilton Worldwide, Synopsys, Pioneer Natural Resources, Cheesecake Factory, Tanger Factory Outlets, Hyatt Hotels, Owens Corning, Baidu, CF Industries, Marathon Oil, Analog Devices

7:00 a.m. Mortgage applications

8:30 a.m. Retail sales

8:30 a.m. PPI

9:15 a.m. Industrial production

10:00 a.m. Boston Fed President Eric Rosengren

10:00 a.m. NAHB survey

2:00 p.m. FOMC minutes

 

Thursday

- Earnings: Walmart, Applied Materials, Cabot Oil & Gas, Barrick Gold, Southern Co., Waste Management, Marriott, Dropbox, Trip Advisor, Consolidated Edison, Credit Suisse, Barclays, Airbus, Daimler

8:00 a.m. Fed Governor Lael Brainard

8:30 a.m. Jobless claims

8:30 a.m. Building permits

8:30 a.m. Housing starts

8:30 a.m. Philadelphia Fed survey

 

Friday

- Earnings: Deere, Eni, Allianz

10:00 a.m. Existing homes sales

11:00 a.m. Boston Fed’s Rosengren