The U.S. stock market may make some progress this morning, as traders look to extend the gains logged at the end of last week. Specifically, last Friday, a stronger-than-anticipated April employment report had investors hoping that a prolonged recession might still be avoided. A relief rally in the banking sector also helped sentiment.
Looking to the week ahead, investors will be paying close attention to the latest inflation data, while keeping an eye on the most recent corporate profit reports. As we were writing this piece, the S&P 500 futures were ahead slightly in pre-market trading.
In economic news, today should be relatively quiet, as there are few reports scheduled. However, the pace should pick up later in the week. On Wednesday, the Consumer Price Index (CPI) for the month of April will be released. Most analysts expect the report to show that prices rose approximately 5% during the month (year over year). On Thursday, the monthly Producer Price Index (PPI) will follow. It should be noted that inflation has remained stubbornly high across a number of categories. In response, the Federal Reserve has aggressively raised interest rates over the past year or so, bringing the benchmark rate to the 5% level. However, the economy often reacts quite slowly to monetary policy decisions, as has clearly been the case lately.
In the corporate arena, first-quarter earnings season is starting to wind down. Most of the large companies have already delivered their reports, and we are now hearing from numerous small and midsized corporations. In general, first-quarter results have been quite soft and guidance has been uninspiring, even though many companies have managed to exceed reduced expectations. This has probably caused traders to take a more-cautious view, especially as current price-to-earnings multiples seem a bit elevated. Among the widely-watched names reporting this week, we will hear from Wynn Resorts (WYNN) and Walt Disney (DIS).
From a technical vantage point, the stock market has been trading in a choppy fashion for the past couple of weeks. Nonetheless, the S&P 500 Index has managed to find some support at its 50-day moving average (located near the 4,050 mark). Looking ahead, it is not clear what might serve as the catalyst needed to push stocks higher from here. For starters, a sustained rebound in the bank sector would probably do much to lift sentiment. A resolution to the nation’s debt ceiling debate might also help matters.
At the time of this article’s writing, the author had a position in Walt Disney (DIS).
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