Covid developments will reign supreme in the market again in the coming week after Friday’s rout
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, United States, October 14, 2021.
Brendan McDermid | Reuters
Uncertainty over a new emerging strain of coronavirus could continue to scare markets, just as Friday’s jobs report and other data for the week ahead show the economy has strengthened.
Stocks and other risky assets were criticized in the post-Thanksgiving session on Friday over reports of a new variant in South Africa, and investors sought safety in Treasuries. Early reports on the variant show that it may be more transmissible than the Delta variant, and scientists are studying the effectiveness of vaccines against it.
The Dow Jones fell 905 points, or 2.5% on Friday in its worst day since October 2020. The S&P 500 fell 2.3% on Friday to 4,594, giving it a 2.2% drop for the week.
“I think this is going to trump what we are going to see else,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “It’s a data-heavy week with ISMs and certainly wages, but I think this new variant is going to freeze behavior until there is more clarity.”
According to Dow Jones, economists expect a strong payroll report on Friday, with 581,000 jobs added, after 531,000 October payrolls. They expect the economy to have shaken off the effects of the downturn linked to the delta variant of Covid, and that growth in the current quarter could be much stronger than in the third quarter.
The Institute of Supply Management’s manufacturing survey is released on Wednesday, and that should be solid as well.
Scott Redler, partner of T3Live.com, said many traders were taken aback in Friday’s shortened session, which is generally positive for the market, and that there are key levels the market needs to maintain over the course of the coming week in order to organize an end-of-year Santa Claus. rally.
“Right now the market has lost some momentum, but it’s not broken. It could very well go and fill up if the S&P 500 50-day moving average holds up next week. very fluid, ”he said.
The 50 Day, at 4,527, is a widely observed momentum indicator, and it is essentially the average close of the last 50 sessions.
The market had already lost momentum last Monday with a bearish reversal, he said.
“On Wednesday, the market absorbed weakness and gave traders a false sense of security, which is normally a nice easy, shortened holiday session on Friday,” Redler said.
Sam Stovall, chief investment strategist at CFRA, said the S&P 500 typically gained 7% between its October low and year-end, but this year it had already gained more than 9%.
“We’re ahead of the game and have to go through some sort of digestion,” Stovall told CNBC.
The Dow plunged more than 1,000 points in Friday’s session. Riskier assets were even lower, with the Russell 2000 closing at 3.7% on Friday. West Texas Intermediate oil futures plunged more than 12% and bitcoin fell almost 8%. Some investors have started to reverse bets in the futures market that a strong economic rebound and inflationary pressures will kill the Fed sooner than expected.
The 10-year Treasury yield, which is moving in the opposite direction, fell to 1.48% from Wednesday’s high of 1.69%.
Investors will seek advice from Fed Chairman Jerome Powell, who will appear before Congress in the coming week with Treasury Secretary Janet Yellen to discuss the coronavirus and the CARES Act stimulus package. Tuesday there is a hearing before the Senate Banking Committee.
“I think you have to assume that the base case is that the virus remains endemic, and not become a pandemic again,” said Barry Knapp, founder of Ironsides Macroeconomics. The concern is that the variant will spread and slow down activity, hitting supply chains even more. This could stimulate inflation while slowing growth.
Knapp said there are risks to stocks and investors should be cautious about buying the market on the downside.
Knapp said the Fed may end up speeding up its reduction in bond purchases, pushing the timing of potential interest rate hikes forward.
“The problem with trying to buy the market as a whole, and buying tech stocks in particular, is that if you buy now because it’s down a few percent, it bounces back at the end of. the year and then the market sells out, “he said. For this reason, he prefers to dive into cheaper sectors like energy and finance, the worst performing sectors on Friday.
Oil and energy will be in the spotlight next week, as OPEC + meets on Thursday. The United States and other governments have agreed to release oil from their strategic oil reserves in an attempt to lower prices. The United States plans to release 50 million barrels.
OPEC + said it would continue to increase production by 400,000 barrels per month, despite calls from the White House to speed up publication.
Helima Croft, head of global commodities strategy at RBC, told CNBC that there was a chance OPEC would decide to halt its own production increase due to releases from SPR.
“I think we are heading towards the OPEC meeting on Thursday, the question is not just if they are taking a break, but are they potentially going to withdraw barrels due to concerns about this new variant alongside the very great SPR outlet, ”she said.
She said the United States was releasing a record amount of oil. “We’re going to have a lot of barrels in this market because we have these concerns about the new lockdown restrictions from Covid,” she said. “Again, it is too early to say whether governments will pull the trigger on such measures, but the market will be concerned.”
Calendar for the upcoming week
10:00 a.m. Pending door-to-door sales
3:00 p.m. New York Fed Chairman John Williams
3:05 p.m. Fed Chairman Jerome Powell delivers opening remarks at the New York Fed event featuring the New York Innovation Center
5:05 p.m. Fed Governor Michelle Bowman
Earnings: Salesforce.com, Box, Hewlett Packard Enterprise, NetApp, Zscaler, Ambarella
9:00 am FHFA house prices
9:00 a.m. Case-Shiller House Prices
9:45 am Chicago PMI
10:00 a.m. Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen speak to Senate banks on coronavirus and the CARES law
10:00 am Consumer confidence
1:00 p.m. Fed Vice President Richard Clarida and Cleveland Fed President Loretta Mester
Earnings: Royal Bank of Canada, PVH, Okta, Five Below, CrowdStrike, Splunk, Snowflake, Synopsys
7:00 a.m. Mortgage applications
8:15 am ADP private payroll
10:00 a.m. Powell and Yellen at the House Financial Services Committee
10:00 am Construction expenses
10:00 am ISM manufacturing
10:30 am Williams of the New York Fed
2:00 p.m. Beige book
Earnings: Ulta Beauty, Signet Jewelers, Dollar General, Express, Kroger, Toronto Dominion, Imperial Canadian Bank, DocuSign, Assana, Marvell Technology, Ollie’s Bargain Outlet, Zumiez, Smith and Wesson
8:30 am Unemployment claims
8:30 a.m. Raphael Bostic, President of the Atlanta Fed
11:30 a.m. Bostic of the Atlanta Fed
1:00 p.m., Vice-President of the Fed, Randal Quarles
8:30 am Employment report
10:00 am ISM Services
10:00 Factory orders