Stronger economic data could fuel stocks that thrive in a rebound in the coming week

A drop in new Covid infections, along with improving economic data and stimulus hopes, could boost stocks that thrive in a recovering economy in the coming week.

Over the past week, expectations of a strong economic rebound have helped boost interest rates.

While the stock market as a whole was volatile, sectors that have rebounded well – finance, airlines and industry – have stood out as leaders. This is called reflation trading.

These stocks gained at the expense of growth and technology, down 2%. Strategists expect reflation trade to continue as signs suggest the economy could make a strong comeback.

The S&P 500 was down 0.7% on the week at 3,906, while the Dow was up 0.1% at 31,494. The Nasdaq was down 1.57% on the week, at 13 874, with the decline of technology. Apple, for example, lost 4% on the week.

The big event for the week ahead is the testimony of Federal Reserve Chairman Jerome Powell, who delivers his semi-annual testimony on the economy to the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.

He is expected to discuss rising interest rates, as well as fears that inflation may start to take off.

“He’s going to have to admit that the data is improving and the virus situation is improving quite significantly,” said Mark Cabana, head of US interest rate strategy at Bank of America. “It’s going to be difficult for him to appear as accommodating as he has been.”

But Powell should continue to stress that the Fed will keep rates low for a long time and keep policies easy to help the economy.

Last week, economists increased the follow-up forecast for the first quarter’s gross domestic product, fueled in part by an unexpected 5.3% jump in January retail sales.

Goldman increased first quarter growth to 6%, and Morgan Stanley said it followed at 7.5% for the first quarter. Economists have linked the surprise gain in retail sales to stimulus checks sent to individuals as part of the latest $ 900 billion stimulus package approved by Congress in late December.

The Biden administration has offered another $ 1.9 trillion Covid relief package. This could be submitted to the House of Representatives next week.

“[Powell’s] will stick to the script. The scenario is that lawmakers must continue to support the economy. It will support the administration’s efforts to push through a big package, ”said Mark Zandi, chief economist at Moody’s Analytics.

Income continues to be important. There are over 60 companies reporting, including Home Depot, Macy’s and TJX.

Major economic reports down next week include durable goods on Thursday, as well as personal income and spending data on Friday

Friday’s report includes the personal consumption expenditure price index, which the Fed is monitoring. The market is on the lookout for signs of rising inflation.

“I think the boom is going to start sooner than most people think,” said Ed Keon, chief investment strategist at QMA.

He said the stronger economy was helping push Treasury yields higher, with the 10-year hitting a one-year high of 1.36% on Friday. Keon said the vaccine rollout was helping the outlook, as was slowing the spread of the virus.

“I think people were expecting a boom in the second half of the year, but I think the second quarter is going to be very strong as people change their behavior,” he said.

“The prudence of saving and not going out, it’s going to go away sooner than we think,” Keon said. “Right now you might see a 10% of GDP figure in the second or third quarter. This is also due to the fact that we will probably have a big stimulus package.”

He said investors are underestimating the surge in economic activity which is expected to start in March and accelerate in the second and third quarters as more people resume dining and other activities.

“I think the world is going to be very different from what it has been in the last 12 months. We are still bullish. We are still overweight stocks,” Keon said.

He said a flood of money could hit the economy.

“The size of the US economy last year was around $ 21 trillion,” Keon added. “Households now have about $ 1.5 trillion in excess savings and the stimulus package is likely to be in the range of $ 1.2.1 trillion.”

He said the service sector is expected to start seeing an edge that has improved the goods-manufacturing side of the economy. “You are going to see an incredible boom.”

Monday

Earnings: Dish Network, Royal Caribbean, Marathon Oil, Ingersoll-Rand, Occidental Petroleum, Transocean, Zoominfo, ONEOK, HSBC

10:00 am Advanced economic indicators

Tuesday

Earnings: Home Depot, Macy’s, Intuit, Thomson Reuters, Square, Toll Brothers, Jazz Pharmaceuticals, McAfee, Medtronic, Pioneer Natural Resources, Bank of Montreal

9:00 am FHFA real estate prices

9:00 a.m. S & P / Case-Shiller house prices

10 a.m .: Biannual economic testimony from Fed Chairman Jerome Powell Senate Banking Committee

Wednesday

Earnings: Lowe’s, NVIDIA, Viacom, Public Storage, Booking Holdings, TJX, Brookdale, Royal Bank of Canada, Apache, Petrobras, Pure Storage, L Brands, Casper Sleep

7:00 a.m. Mortgage applications

10:00 am Sales of new homes

10:00 a.m .: Biannual economic testimony from Fed Chairman Powell to the House Financial Services Committee

Thursday

Earnings: Salesforce.com, Norwegian Cruise Lines, Etsy, Best Buy, HP, Shake Shack, Beyond Meat, Anheuser-Busch Inbev, Dell Technologies, Virgin Galactic, American Tower, Cleveland Cliffs, Airbnb, Carvana, Door Dash

8:30 a.m. Raphael Bostic, President of the Atlanta Fed

8:30 a.m. Unemployment claims

8:30 am Durable goods

8:30 am Second reading of Q4 GDP

10:00 am Pending home sales

10:00 a.m. Advanced economic indicators

10:00 a.m. James Bullard, President of the Saint-Louis Fed

3:00 p.m. New York Fed Chairman John Williams

Friday

Earnings: Fluor, Cinemark, Draft Kings, Foot Locker, AMC Networks

8:30 a.m. Personal income and expenses

8:30 am Advanced trade

9:45 a.m. Chicago PMI

10:00 a.m. Consumer sentiment

Saturday

Earnings: Berkshire Hathaway