Stocks could see more turmoil next week, especially if bond yields continue to rise

After a week of extraordinary turbulence, stocks are likely to remain volatile as investors await new inflation data and watch bond yields play out.

The big report for the markets is Wednesday’s April Consumer Price Index. Economists expect a high inflation reading, but it should moderate from March’s 8.5% year-on-year pace. A second inflation report is released on Thursday, the producer price index, which is an indicator of wholesale prices.

“I think it’s going to be a hot number, but not as hot as it was last month,” said Mark Zandi, chief economist at Moody’s Analytics. Zandi expects the headline CPI to rise 0.3% on the month or 8.2% year over year.

Investors are focusing on inflation and other key data that will influence the Federal Reserve as it moves forward with interest rate hikes.

The Fed raised its target fed funds rate by half a percentage point on Wednesday and signaled it could follow with more increases of the same size. Fed Chairman Jerome Powell said after the meeting that he expects the economy to experience a “soft or soft” landing.

“I think the two big concerns for the market are inflation and how aggressive the Fed is going to be in trying to control it,” said Art Hogan, chief market strategist at National Securities. Hogan said investors are also concerned about China’s economy as it locks down to fight Covid and how that slowdown could affect the rest of the world.

Hogan said that if the CPI comes in as expected, that could provide some stability for both stocks and bonds, as then it would appear that inflation has peaked.

Stocks were very volatile last week, posting big intraday swings in both directions. The S&P 500 closed at 4,123 and was down just 0.2% for the week. The Nasdaq fell 1.5% for the week

Energy was by far the best performing sector, up 10% for the week. REITs were the worst performers, down more than 3.8%, followed by consumer discretionary, down 3.4%.

Equity investors have also been watching the bond market, where yields have risen as bonds have been sold.

The 10-year Treasury yield topped 3% for the first time since late 2018 last week. On Friday, the yield was 3.13%, compared to 2.94% the previous Friday. The rising 10-year yield has had a stranglehold on stocks, particularly growth and technology stocks, during their rapid rally.

The benchmark 10-year index was around 1.5% at the beginning of the year. Many lending rates are linked to it, including mortgages.

“If people realize that inflation is peaking, and you could argue that the 10-year yield won’t necessarily peak, but will stop being parabolic… that’s what you could do.” the public to slow down sales,” said Julian Emanuel. , Head of Equities, Derivatives and Quantitative Strategy at Evercore ISI.

Emanuel said that retail investors have invested heavily in growth names. Those stocks do better when money is cheap.

“The bond market is turning heads here,” he said. But he expects the stock market to be in the process of finding its lowest point. “What we’ve seen is volatility both up and down in equities…and that’s the beginning of a bottoming out process.”

Some technical analysts said stocks could drop again if the S&P returns to Monday’s low of 4,062 and holds there.

Scott Redler, a partner at T3Live.com, targeted 3,850 in the S&P as the next stop on the downside if the index breaks Monday’s low.

“As of now, it seems like every rallies where you can get an oversold bounce have been sold,” he said. “I think the news over the weekend will play a factor in the emotional opening on Monday.”

He said there could be news about Ukraine as it is Victory in Russia Day, and Russian President Vladimir Putin is expected to speak.

Redler said that Microsoft and Apple could have a big impact on trade next week. If Apple breaks support around $150 and Microsoft breaks $270, a level it has been holding, the two biggest stocks could sweep the S&P 500 below 4,000.

“If they break those levels, it will add some grease to the wheels and take the market to new lows. That could get us closer to a tradable low,” he said. Apple closed Friday at $157.28 a share, slightly higher on the day.

Redler said that if Microsoft breaks the $270 level, its chart would complete a negative head and shoulders formation that could signal further weakness in the stock. Microsoft closed at $274.73 a share on Friday.

week ahead calendar

Monday

Profits: Coty, Elanco Animal Health, Duke Energy, Palantir Technologies, Viatris, Hilton Grand Vacations, Tyson, Tegna, BioNTech, Lordstown Motors, Energizer, Him & Hers Health, 3D Systems, Vroom, AMC Entertainment, IAC/Interactive, Brighthouse Financial, XPO Logistics, ThredUp, Equitable Holdings, Novavax, Simon Property, International Flavors and Fragrances, Equitable Holdings, Suncor Energy

8:45 a.m. Atlanta Fed President Raphael Bostic

10:00 a.m. Wholesale Trade

Tuesday

Profits: Bausch Health, Warner Music Brink’s, TransDigm, Edgewell Personal Care, Aramark, Planet Fitness, Reynolds Consumer Products, International Game Tech, Bayer, Nintendo, Hyatt Hotels, Choice Hotels, Rackspace, Coinbase, Electronics Arts, Inovio Pharma, Occidental Petroleum, Allbirds , H&R Block

6:00 am NFIB Small Business Survey

7:40 a.m. New York Fed President John Williams

8:30 a.m. Atlanta Fed Bostic

9:15 a.m. Richmond Fed President Tom Barkin

1:00 p.m. Fed Governor Christopher Waller and Minneapolis Fed President Neel Kashkari

3:00 p.m. Loretta Mester, President of the Cleveland Fed

7:00 p.m. Raphael Bostic of the Atlanta Fed

Wednesday

Profits: Walt Disney, Beyond Meat, Copa Holdings, Toyota, Performance Food Group, Wendy’s, Yeti, Krispy Kreme, Fossil, Bumble, Sonos, Rivian Automotive, Vacasa, Marqeta, Perrigo

8:30 a.m. CPI

12:00 p.m. Atlanta Fed Bostic

2:00 p.m. Federal Budget

Thursday

Profits: Softbank, Allianz, Siemens, Six Flags, Tapestry, US Foods, CyberArk Software, Squarespace, WeWork, Brookfield Asset Management, Poshmark, Affirm Holdings, Motorola Solutions, Toast, Vizio

8:30 a.m. Initial Claims

8:30 a.m. PPI

4:00 pm Mary Daly, President of the San Francisco Federal Reserve

Friday

8:30 am Import prices

10:00 a.m. Consumer Sentiment

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