U.S. Stock Edges Higher On Vaccine Progress & Outlook For Inflation
U.S. stock futures rose modestly on Monday morning trading. Could it be suggesting that there will be another round of rallies this week? Considering the volatility we have in the stock market today, investors should note that equity futures don’t necessarily predict market moves after the opening bell. But with Treasury yields flirting around their one-year high level, investors remain cautious. That is especially when dealing with stocks with lofty valuations.
Meanwhile, the European equities started the week on a strong note amid vaccine optimism. Meanwhile, the economic data from China showed a surge in industrial output. With the positive momentum from global markets, would the US follow suit this morning? Certainly, many are wary of the increasing long-term borrowing costs. After all, we have seen the impact of rate increases. We saw the rotation in the stock market, chiefly from growth to value stocks. With the benchmark Treasury yield fluctuating around 1.62%, it is no surprise some growth investors are feeling a little jittery. For those unfamiliar, higher bond yields make it tougher to justify the lofty valuations for the fast-growing tech stocks. Separately, expectations for a broader economic reopening make reopening stocks more attractive.
From the stock futures, investors could expect another uneventful day for tech stocks today. Or could they? The Dow and S&P 500 futures are trading in the positive territory, rising 0.30% and 0.07% respectively as of 8:05 a.m. ET. On the other hand, Nasdaq futures are marginally lower, falling 0.03%.
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Federal Open Market Committee’s Meeting
Another highlight this week will be the monetary policy decision from the FOMC that will take place on Tuesday and Wednesday. Some analysts are expecting the U.S. central bank to revise its GDP forecast. This came after the $1.9 trillion fiscal stimulus package that will send direct payments of up to $1,400 to most Americans.
The most important data point to watch will be the central bank’s expectations for interest rates in 2022 and 2023. Considering the recently passed stimulus package and rapid progress of vaccinations in the country, there’s a good chance that rates are likely to be revised higher.
“We think it is likely that the FOMC economic forecasts will acknowledge the improved growth picture this year, and some transitory inflationary pressures as well, but will continue to show a long road toward conditions consistent with maximum employment that would put sustained pressure on inflation,” Morgan Stanley economist Ellen Zentner.
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Bitcoin Breached $60K
Bitcoin surged as high as $61,000 for the first time over the weekend. The poster child of cryptocurrencies, which boasts a market capitalization of more than $1.1 trillion, has been buoyed by investor optimism. Certainly, the participation of institutional players like Square (NYSE: SQ) and PayPal (NASDAQ: PYPL) may have added some weight to crypto adoption. But it was Tesla’s (NASDAQ: TSLA) $1.5 billion investment worth of Bitcoin that sent the strongest signal. CEO Elon Musk further mentioned that consumers could purchase Tesla with Bitcoin. That has definitely strengthened bitcoin’s appeal as a form of payment.
“Money is flowing into crypto because rock-bottom interest rates have reduced the appeal of bonds and other assets. People are also bored at home during the pandemic and see owning crypto as a source of entertainment”- Mark Cuban- “Shark Tank” billionaire
As Bitcoin skyrockets to new highs, it wouldn’t hurt to put up a list of cryptocurrency stocks to watch this week. In the larger scheme of things, Bitcoin is no longer unfamiliar to the investing world. What’s more, investors are increasingly receptive to the cryptocurrency. One of Cuban’s costars, Kevin O’Leary, has also warmed up to bitcoin after previously calling it “garbage”. Perhaps that is not surprising. After all, if more people accept a new currency, that will encourage more to do so. It is pretty much an example of network effects.
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Retail Sales
One of the most closely watched economic reports will be the February retail sales. Consensus estimates are expecting the retail sales to have some pull-back last month after surging significantly in January. Investors should note that we are not exactly out of the woods yet. That is despite the stock market showing otherwise. The great news is that the outlook for spending later this year remains strong. This came as a $1.9 trillion cash infusion and mass vaccinations are likely to help us get out of this pandemic stronger.
Recall that January’s retail sales report showed a strong rebound in some of the categories hardest hit during the pandemic. Department store sales spiked by nearly 24% month-over-month as in-person activities begin to take place again. Consumers have been sitting on historic levels of savings during the pandemic. That said, the degree to which consumers are willing to spend from their savings could help support exceptional growth this year. To put it simply, the tailwinds from fiscal stimulus and improving virus situation could power the U.S. economic growth this year.
“The February retail sales report likely revealed a deep freeze in consumer spending,” Bank of America economist Michelle Meyer wrote in a recent note. “This decline reflects three main factors: 1) payback from the stimulus-induced gain in January; 2) delayed tax refunds; and 3) winter blizzard. The first two factors had a particularly negative impact on the lower income group.”
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Earnings Winding Down
Recall that DocuSign (NASDAQ: DOCU) powered through the pandemic with its electronic agreements offering. This shows us that there will always be a silver lining in a heavily battered economic environment. Earnings and revenue came in higher than Wall Street’s expectations. As we continue to wind down the earnings season, there are still big names reporting this week. These include CrowdStrike Holdings (NASDAQ: CRWD), Dollar General (NYSE: DG), Nike (NYSE: NKE), and FedEx (NYSE: FDX). As such, whether you are looking for the best cryptocurrency stocks to buy, looking at the retail reports, or following earnings reports, these should be enough to keep you busy this week.
