Job explosion report could push stocks higher in coming week

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Traders work on the floor of the New York Stock Exchange.

NYSE

April started off with a rally and the market could continue to post gains during the month, strategists say.

The US Department of Labor’s surprisingly strong employment report on Friday showed there were 916,000 jobs added in March, compared to the 675,000 expected by economists.

The coming week should be fairly quiet, with a few economic reports and Federal Reserve speakers filling the lull ahead of earnings season.

The Institute for Supply Management’s service sector survey will be released next Monday and should be given special attention after the Institute’s manufacturing survey hits its highest level since 1983. The Minutes of the last Federal Reserve meeting will be released next Wednesday afternoon.

“Literally almost everything should be very robust for the foreseeable future, I think. We’re coming out of a low base,” said Stephen Stanley, chief economist at Amherst Pierpont.

Economists expect a very strong second quarter as the economy reopens and stimulus spending begins, which should be positive for stocks unless interest rates rise too quickly.

Major stock indexes were up sharply as the schedule rolled out in April.

On Thursday, the S&P 500 rose 1.2% to a new high of 4,019.87. Meanwhile, the Dow Jones Industrial Average climbed more than 170 points and the technology-heavy Nasdaq Composite jumped 1.8%.

The closely watched 10-year Treasury benchmark yield was above 1.68% on Friday morning, well below the recent high of 1.77% reached earlier in the week.

The 10-year is important because it influences mortgages and other loans, but recently it has also recently had a negative correlation with technology stocks. When the 10-year yield increased slightly, the technology went down.

All eyes on the gains

“The macro schedule is pretty light. I think the focus will shift to earnings fairly quickly,” said Shawn Snyder, head of investment strategy at Citi US Wealth Management. “It will be the next thing to turn to.”

He said the market is often weaker just before earnings season.

First-quarter profits are expected to be up 24.2% year-on-year, according to Refinitiv. This will be the first quarter where the results of the previous year included the impact of the end of the pandemic.

Some strategists expect the earnings season to be accompanied by more favorable comments from companies that could lead to positive forecast revisions, fueling the stock market.

“About 13 months ago, COVID-19 kicked us out of our desks and our kids out of school. As the pandemic nearly crippled the global economy, an unprecedented political response has kept the economy afloat, resulting in the shortest drop in the recession and the largest stock market rebound in history, ”noted Jonathan Golub, chief US equities strategist at Credit Suisse.

Golub said the S&P 500’s 78% rise from its low last March was largely due to earnings.

“In each of the last two periods of recovery, the trend of positive revisions has lasted 2-3 years, providing significant tailwind for the market,” he wrote in a note.

He added that economists continued to revise growth forecasts upwards.

“Our work shows that every 1% change in GDP results in a 2½ to 3% change in income and even greater improvements in profits,” Golub wrote.

April is far from the cruelest month

Aside from an expected rebound in earnings, some strategists expected April to be a bullish period for stocks, as it has historically been.

Tom Lee, managing partner of Fundstrat, for example, points to the decline of the VIX, the Chicago Board Options Exchange’s volatility index, to pre-pandemic levels and says it’s constructive for stocks.

The VIX is calculated on the basis of the puts and calls of the S&P 500, traded on the CBOE.

Lee also noted that when the market closes higher on March 31, the last day of the first quarter, and again on April 1, the first day of the second quarter, the market performed better in April than usual.

Since World War II, when those two days were positive, the S&P 500 has risen on average 2.4% in April, up from its usual 1.3% gain, Lee said.

“The main thing is that it is [a] positive environment and risk / return for equities. This allows us to remain constructive, “he wrote in a note.

Sam Stovall, chief investment strategist at CFRA, said the market enters April and the second quarter with a tailwind.

“April is generally good. It is the best month in terms of average price change. The second quarter is not a bad quarter on average. It is up 2.8% on average since 1990, and the 11 sectors posted average gains, ”he said.

Stovall said some of the cyclical stocks may have gotten ahead and energy, industrials and financials may take a break. These sectors outperformed while technology lagged behind.

The market enters the “May sell” period in the second quarter. The market adage, “sell in May and go,” is based on the idea that stocks tend to underperform from May to October.

“During that selling period in May, the technology has been doing quite well. Now is probably not the time to start bailing out the technology,” Stovall said. “Tech could end up receiving a short term reprieve.”

Fed in advance

The Federal Reserve will release the minutes of its last meeting on Wednesday afternoon, and investors will review them for any further comments on inflation. With the prices of fuel and other commodities already on the rise, investors fear that more stimulus will push up inflation.

Fed Chairman Jerome Powell said after the March meeting that the Fed viewed inflationary pressures as transient, but markets still fear it could become a bigger problem. Inflation is currently well below the Fed’s 2% target.

The Producer Price Index – which measures the average change in prices received by domestic producers for their production – will also be closely watched when released on Friday.

As for Fed speakers, Powell is expected to discuss the global economy on Thursday at an International Monetary Fund panel, which will be moderated by Sara Eisen of CNBC.

Other central bank speakers include Chicago Fed Chairman Charles Evans, who speaks Tuesday and Wednesday, and Richmond Fed Chairman, Tom Barkin, who speaks Wednesday.

Treasury Secretary Janet Yellen speaks Monday during a Chicago Council on Global Affairs webinar on economic recovery Monday.

Calendar for the upcoming week

On Monday

10:00 Factory orders

10:00 am Non-manufacturing data from the Institute for Supply Management

11:00 a.m. Secretary of the Treasury Janet Yellen at the Chicago Council on Global Affairs

Tuesday

10h00 JOLTS job offers

4:05 p.m. Chicago Fed Chairman Charles Evans

Wednesday

8:30 a.m. Trade balance

9:00 am Evans of the Chicago Fed

11:00 am Dallas Fed Chairman Rob Kaplan

12:00 p.m. Richmond Fed President Tom Barkin

2:00 p.m. Minutes of the Federal Open Market Committee

3:00 p.m. Consumer credit

Thursday

8:30 am Unemployment claims

11:00 a.m. Saint-Louis Fed President James Bullard

12:00 p.m. Fed Chairman Jerome Powell discusses the economy at International Monetary Fund panel

Friday

8:30 am Producer price index

10:00 a.m. Inventories of wholesalers

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