Source: Wind
With investors focusing on retail sales data and corporate earnings this week, the three major U.S. stock indexes are expected to recover from a sell-off since the end of March.
In the week ahead, investors will continue to look for clues on the Fed’s rate hike path from economic reports and comments from Fed officials. Federal Reserve Chairman Jerome Powell is scheduled for an interview with the media on Tuesday afternoon ET. For now, markets are pricing in a 50bps rate hike at the June meeting and another 50bps in July. The Fed raised its target federal funds rate by another 50 basis points this month, following a 25 basis point hike in March.
Consumer conditions will be the main focus for the week ahead. Economic data released this week includes April retail sales, as well as housing data such as the National Association of Home Builders (nahb) survey.
“As oil prices retreated from record highs in March, natural gas spending contracted sharply month-on-month, weighing on overall and non-auto metrics,” Bank of America analysts wrote in a recent report. Excluding autos, natural gas, Building materials and catering, core control sales should jump sharply, indicating continued strength in merchandise spending.”
Walmart, Home Depot and Target report results this week, and the results of these big chain store chains could provide insight into the impact of inflation on consumer spending and attitudes.
Investors accelerated their sell-off in U.S. stocks last week, but the sell-off eased on Friday. The S&P 500 fell to 3,858.87 on Thursday, down 19.55% from its session high and very close to the official bear market decline of 20%, after gaining 2.4% on Friday. The continued rise in U.S. Treasury yields has also slowed, with the 10-year U.S. Treasury yield peaking at 3.2% last week and closing at 2.93% on Friday.
Katie Stockton, founder of Fairlead Strategies, said: “I think 10-year Treasury yields are going to stagnate here. Such a steep uptrend is unsustainable, and we believe Treasury yields and the dollar will consolidate.” She said , the 10-year U.S. Treasury yield support is at 2.55%, and the upward resistance is at 3.25%.
Many traders said they were looking for other investments, but even tried-and-true alternatives were losing their appeal. The scramble for cash — a common tactic in turbulent times — is less attractive when inflation hovers above 8%, eroding purchasing power. With mortgage rates rising and house prices soaring to record levels, investing in real estate can feel impossible.
Some investors hold their own stocks because they think they will pay off in the end, and even buy more shares on dips. Others stuck with it because they couldn’t think of a better asset to defend against inflation.
Equity funds have seen relatively little outflows, according to a recent Bank of America analysis. The bank estimates that for every $100 that has flowed into the stock market since the start of 2021, only $4 has been withdrawn so far. This is based on EPFR data as of Wednesday. The firm tracks the movements of retail and institutional investors in exchange-traded funds and mutual funds.
That means investors are still not panicking, but it also suggests the stock market could fall further. Analysts at Bank of America, for example, found that during the 2020 stock market sell-off, investors took out $61 for every $100 invested. During the financial crisis, it was even worse: for every $100 invested, investors were able to redeem $113.
Late last month, about 59% of individual investors said they expected stocks to fall in the next six months, according to the American Association of Individual Investors — the most bearish sentiment since the financial crisis. That same month, however, stocks made up about 70% of their portfolios, hovering at their highest levels since 2018.
Investors are grappling with two conflicting desires: a safe place to invest, and a desire for market returns. Take money market funds: Investors have withdrawn a net $186 billion from money market funds in seven of the 11 weeks since geopolitical factors picked up, according to EPFR. In the other four weeks, they had a net inflow of $132 billion.
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