Expect some window dressing this week but keep a close eye on rates

Are we at that point in this cycle where good news is bad news? For the better part of the last six weeks, better than expected economic data has been met with a sharp rise in interest rates, heightened volatility as measured by the CBOE Volatility Index, weak equity market performances across the board (particularly in the growth and technology space) and a sense that the post-COVID-19 equity rally has run its course.

Of course, the primary driver of concern for investors is inflation whether it be the by-product of excessively aggressive fiscal policy or unprecedented accommodative monetary policy or both, equity markets have become increasingly selective in terms of which sectors and issues get rewarded with investor interest and capital. The question I think many investors are considering is whether recent weakness will lead to a more broad-based route in the coming weeks.

For this week at least, the calendar end for Q1 should provide the window dressing, and as a result cover, for equities.

Once we step into Q2 this week, Q1 earnings season will get underway. Q1 results will need to provide additional impetus for investors to put more capital to work at valuations that are more stretched than they have been in well over a year. As we discussed last week, in a review of Q4 results by FactSet, the year-end quarter not only delivered better than expected EPS by roughly 80% of the S&P 500 companies reporting, but also better than expected guidance roughly 75% of the time.

This week’s economic calendar highlights:

The Conference Board’s Consumer Confidence reading for March is released on Tuesday at 10:00 am. The headline reading is expected to advance from February’s 91.3 reading to 96.4. The advance is expected to be fueled by familiar themes.

The ADP Employment Report for March is expected to reflect significant private payroll gains. Econoday consensus for March is +500,000 versus the previous monthly results of +117,000. Though a decidedly positive sign in as far as the post-COVID-19 recovery is concerned, perversely, any sign s accelerating economic strength or employment gains will continue to be greeted with caution as a result of the inflationary fears that may or may not be ignited by better than expected data. The EIA Petroleum Status Report is out Wednesday morning. Last week’s results remained largely in-channel with the previous week’s inventory results.

Topline weekly jobless claims, released Thursday am, are expected to remain in-line with last week’s results (684K vs. 699K). Last week’s claims totals reflected a significant drop (-97K) in initial claims from the previous week. The March monthly employment report is likely to inject added inflation-centric concern into the market. Econoday consensus figures for the month appear quite constructive.

Nonfarm Payrolls – M/M are expected to jump to 619K from 379K. Econoday is calling for the unemployment rate to slip to 6.0% from the current 6.2%. Private payrolls and manufacturing payrolls are also expected to reflect gains for the month.

Flickr photo: by Ted Drake
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