Updated Market Outlook (Volatility isn’t Automatically Bearish)

What’s in Today’s Report:

  • Updated Market Outlook – Increased Volatility Isn’t Automatically Bearish
  • Weekly Market Preview:  Do We Get More Hints of Stagflation?
  • Weekly Economic Cheat Sheet:  Friday’s Flash PMIs are Key.

Futures are modestly lower following disappointing Chinese economic data.

Chinese economic data joined recent U.S. data in hinting at a possible plateauing recovery and building inflation pressures.  Industrial Production rose 9.8% vs. (E) 10.0% while Retail Sales gained 17.7% vs. (E) 25%.  Housing Prices, meanwhile, rose 0.48% vs. (E) 0.41%.

Today the Empire Manufacturing Survey (E: 25) is the key report and markets will want to see solid data and stable prices indices.  We also get the Housing Market Index (E: 83) but that shouldn’t move markets.

From a Fed standpoint, Clarida (10:05 am ET) is the headliner today while Bostic (10:00 a.m. ET) will also provide comments.

An Important Week for the Markets

What’s in Today’s Report:

  • Weekly Market Preview: An Important Week for the Markets
  • Weekly Economic Cheat Sheet: Focus on the Fed

U.S. equity futures are tracking international shares higher this morning as investors digest mostly positive economic data and a stable bond market while the market focus is already turning ahead to this week’s Fed meeting.

Economically, Chinese Industrial Output and Retail Sales both beat expectations in the first two months of the year with the headlines jumping 35.1% and 33.8%, respectively, however, the unemployment rate edged up 0.1% to 5.5%.

Looking into today’s session, there is just one economic report due out ahead of the bell: Empire State Manufacturing Index (E: 14.8). Investors will be looking for a good number but if the report is too strong and causes the 10-year yield to extend Friday’s rise, that would likely weigh on stocks.

There are no other major catalysts on the calendar today and markets will begin to look ahead to this week’s Fed meeting (which begins tomorrow) however the 10-year yield will remain a key influence on equities as a continued move higher will act as a strengthening headwind for equities, especially for tech stocks.

Harder to Rally?

What’s in Today’s Report:

  • Harder to Rally?
  • Weekly Market Preview:  All About Rising Yields (and Central Bank Reaction)
  • Weekly Economic Cheat Sheet:  A Busy and Important Week of Data, and Powell Q&A on Thursday

Futures are sharply higher thanks to falling bond yields combined with progress on stimulus and vaccine distribution.

The Reserve Bank of Australia surprised markets and announced it was buying $3 billion of longer-dated bonds as global central banks ramp up the response to rising yields, and that is the main reason we’re seeing global bond yields (including Treasuries) lower this morning.

On stimulus, the House passed the $1.9 trillion stimulus bill while the FDA approved JNJ’s single-dose COVID vaccine.  Both events were already priced into stocks, however, so they aren’t causing this morning’s rally (again that’s based on falling bond yields).

Today focus will be on data and Fed speak, as we get the  ISM Manufacturing PMI (E: 58.9) and two Fed speakers this morning: Williams (9:00 a.m. ET) and Brainard (9:05 a.m. ET).  As was the case last week, expect stocks to move inversely to yields, and if the data is solid (but not too good) and the Fed speakers dovish, expect yields to fall further and an extension of this morning’s rally.  

Updated Market Outlook (Factoring in Rising Yields)

What’s in Today’s Report:

  • Updated Market Outlook (Factoring in Rising Yields)
  • Weekly Market Preview:  All About Powell and Treasury Yields
  • Weekly Economic Cheat Sheet:  Key Inflation Report and Jobless Claims

Futures are moderately lower as Treasury yields resumed their rise early Monday morning.

The 10 year Treasury yield rose as high as 1.39% earlier this morning and that’s weighing on futures as the rise in yields continues from last week.

Economic data was sparse overnight as the only notable number was the German Ifo Business Expectations survey which beat estimates (94.2 vs. (E) 91.8).

There was no notable news regarding stimulus or vaccines over the weekend, and the market still expects the JNJ vaccine to be approved this Friday (2/26) and for the stimulus bill to pass the House around the same time (with Biden signing the bill sometime in mid-March/early April).

Today there are no notable economic reports nor any Fed speakers (Powell speaks tomorrow), so the focus today will be on Treasury yields.  If they continue to rise, I’d expect modest to moderate pressure on stocks ahead of Powell’s testimony tomorrow (where markets will want some comfort that the Fed isn’t worried about yields).

Too Much of a Good Thing?

What’s in Today’s Report:

  • Can There Be Too Much Of A Good Thing in Markets?
  • Weekly Market Preview:  Stimulus Expectations and Vaccine Optimism Remain the Two Drivers of Stocks
  • Weekly Economic Cheat Sheet:  Inflation

Futures are modestly higher following a quiet weekend of news as global markets rose on momentum from last week’s rally.

The stimulus process continued as Democrats passed procedural votes on Friday and a $1.5-$1.9 trillion stimulus bill is expected to become law sometime in the next 4-6 weeks (this expectation remains the single biggest driver of the stock rally).

Economically, the only notable report was German Industrial Production, which slightly missed estimates (but that’s not moving markets).

Today there are no economic reports and only one Fed speaker, Mester at 12:00 PM ET, so markets will continue to be driven by stimulus headlines and vaccine optimism, and as long as there aren’t any material disappointments on either front, the path of least resistance for stocks remains higher.

Three Things That Could Go Wrong

What’s in Today’s Report:

  • Three Things That Could Go Wrong
  • Weekly Market Preview:  Stimulus Progress and Earnings Will Move Markets
  • Weekly Economic Cheatsheet:  Fed Meeting on Wednesday.

Futures are marginally higher as markets bounce back from Friday’s declines following a quiet weekend of news.

Economically, the only notable report was the German Ifo Business Expectations Index, which slightly missed estimates at 91.1 vs. (E) 93.2.

Politically, there was no progress on stimulus (that is the main focus of markets going forward) while the COVID travel bans that were announced won’t move markets as they were largely in place for the past several months (the bans were effectively just extended by the Biden Administration, so it’s not something materially new).

Today there are no economic reports so any “color” on the stimulus progress will move markets.

On the earnings front, we get some notable reports today (KMB ($1.61), BOH ($1.11), XLNX ($0.71)) but the really important results don’t come until Tuesday (MSFT) and Wednesday (AAPL, TSLA, FB, etc.)

Can the Market Have the Best of Both Worlds?

What’s in Today’s Report:

  • Can the Market Have the Best of Both Worlds?
  • Weekly Market Preview: The Problem Isn’t the Fundamentals, It’s the Expectations
  • Weekly Economic Cheat Sheet: Flash PMI Data in Focus

U.S. futures are tracking international equity markets higher this morning as investors remain optimistic about more fiscal stimulus bolstering a continued rebound in growth.

Economically, the German ZEW Survey was slightly better than expected overnight with the Sentiment component notably improving from the previous month.

There are no economic reports today and no Fed officials are scheduled to speak however Janet Yellen will speak before the Senate Finance Committee at 10:00 a.m. ET before the committee votes to confirm her nomination as Treasury Secretary. Her remarks are expected to be very accommodative and support significant fiscal stimulus for the foreseeable future, so any disappointment on that topic could weigh on stocks.

Beyond Yellen’s commentary, Q4 earnings season continues today with several notable financials reporting ahead of the bell: BAC ($0.56), GS ($6.99), and SCHW ($0.70) while NFLX ($1.38) will release results after the close.

Bottom line, it appears Friday’s risk-off move into the long weekend is being reversed this morning as there were no notable or market moving developments over the weekend and hope for stimulus clearly remain one of the most important supporting factors for this market right now.

Why the Long-Term Bullish Case Got Stronger Last Week

What’s in Today’s Report:

  • Why the Long-Term Bull Case Got Stronger Last Week
  • Weekly Market Preview:  Will Lockdown Worries Cause a Near Term Pullback?
  • Weekly Economic Cheat Sheet:  Is the Economic Recovery Starting to Stall?

Futures are down nearly 2% this morning as concerns about a coronavirus mutation offset news of a stimulus deal being reached.

England went into lockdown again after a mutation of COVID-19 started to spread rapidly throughout the country, sparking fears of an extension of the pandemic.  Positively, scientists are confident that the vaccine will work for COVID mutations as well, but that’s not helping stocks this morning as concerns rise about wider/longer economic lockdowns.

On stimulus, Congress agreed to a $900 billion stimulus bill and a vote is expected today. However, this was already priced into stocks (that’s why it’s not causing a rally).

Today there are no economic reports and no Fed speakers, so focus will remain on stimulus and the coronavirus.

Regarding stimulus, the stimulus bill is expected to pass Congress today (so markets will expect that to happen).  Regarding coronavirus, any headlines that imply this mutated coronavirus is spreading across the globe will cause further downside in stocks (because it could lead to greater/longer economic lockdowns, which has been the focus of the market throughout the pandemic).

Are Investors Too Complacent?

What’s in Today’s Report:

  • Are Investors Too Complacent Right Now?
  • Weekly Market Preview:  Stimulus and an Important Fed Meeting
  • Weekly Economic Cheat Sheet:  Is the Recovery Slowing?

Futures are modestly higher following reports that the stimulus bill might be broken up into two parts (with the larger part passing before year-end).

Congress is going to try and pass two stimulus bills, the first a $750 billion-ish relief bill, and after that, a 200 billion-ish bill that deals with stickier issues of state funding and COVID liability.  The market is rallying on this news because it increases the chances of near-term stimulus (although even if this happens, and it’s not a done deal, it’s already priced into stocks).

Economic data was sparse as EU Industrial Production was in-line with estimates at 2.1% vs. (E) 2.0%.

Today there are no economic reports and no Fed speakers so stimulus headlines will drive trading.  The key will be Pelosi as she’s not been in favor of a two-part bill before, so her support (or not) will be critical to the chances of stimulus actually happening.  Bottom line, if she’s for it, expect a further rally.  If she’s not, expect stocks to turn negative on the news.

How Much Is Left in the Rally?

What’s in Today’s Report:

  • How Much Is Left in the Rally?
  • Weekly Market Preview:  Can Stimulus Get Done?
  • Weekly Economic Cheat-sheet:  Jobless Claims and Inflation

Futures are modestly lower as markets digest last week’s rally following more lockdown announcements.

California enacted a de-facto state-wide shutdown in response to rising coronavirus cases, and that is the main headwind on futures this morning.

Regarding stimulus, optimism continued to grow that a deal around $1 Trillion can be struck in the next few weeks, although nothing definitive occurred over the weekend.

Economic data was sparse as German Industrial Production beat estimates and rose 3.2% vs. (E) 0.7%.

Today there are no economic reports and no Fed speakers, so focus will remain on stimulus chatter.  Senate Majority Leader McConnell remains the wildcard as he hasn’t yet voiced support for the current proposed bill, but if he does, that will significantly increase the chances it gets done before year-end (and that would cause another short term pop in stocks).