Traders on the floor of the New York Stock Exchange.
Earnings will be the main focus for investors next week as they address the question of whether the cost of margins is rising and whether it is signaling rising inflationary pressures.
So far, in just one week, companies are beating earnings estimates by a large margin of more than 84%, according to Refinitive.
This three-month period is the first compared to the profit of the previous year affected by the pandemic. Profit growth for the S&P 500 so far is a staggering 30.2% for this quarter, based on actual reports and estimates.
That makes it the best three-month period since the third quarter of 2010, according to FactSet.
The S&P 500 ended the week at a record high of 4,185, a gain of 1.4%. The Dow, higher for the fourth week, he got 1.2 to finish the week at a record 34,200. Nasdaq earned 1.1% for the week, finishing at 14,052.
Utilities were the most successful main sector of S&P, recording growth of 3.7%, followed by materials, growth by 3.2% and health, by 2.9%. Technology has grown by 1%. Finance increased by 0.7%, while industry increased by 0.6%.
Lori Calvasina, head of U.S. capital strategy at RBC, said she was tracking earnings coming in next week due to signs of margin pressures due to higher commodity prices, supply chain problems and other cost factors.
“Those big forces that are currently threatening margins are not really about finances. They are more about industrial companies, material companies and consumer companies,” she said.
“I think [sectors] as industrial manufacturers will give you color on the margins, “Calvasina added.” Margins are really a big question mark for the future. I definitely watch and listen to what companies have to say about taxes. “
President Joe Biden suggested it increase in income tax from 28% to 28% to help pay for his infrastructure plan.
Although the fate of the tax increase is still unclear, the increase in other costs is obvious. Fuel costs have risen sharply with oil prices rising by 30% since the beginning of the year. Futures prices on the futures market are always high, and copper futures have risen by about 17% as of today.
Calvasina said companies are facing wind and backwind.
“Companies say we’ve found new ways to cut costs. When revenue comes back, margins will explode upwards,” she said. “Some of the costs associated with Covid will be reduced. These are some of the positive results.”
But not every company will see these benefits. “We could start to see wage pressures return. Rising commodity costs – PPI growth and CPI growth – are negative margins,” Calvasina said, referring to producer prices and consumer price indices.
Peter Boockvar, chief investment officer at the Bleakley Advisory Group, said he also closely monitors margin comments because of the impact on individual stocks, but also because of what they mostly say about inflation penetrating the economy.
“What will be most interesting about earnings are profit margins. Some companies will be squeezed out because they will see prices rise, and others not because they can pass them on,” Boockvar said.
He said that he would carefully pay attention to whether the lack of semiconductors is shown in the earnings of technology companies. Car manufacturers have already hit and cut production due to a lack of chips.
The CPI for March showed an increase in headline inflation to 2.6% from year to year. A 9.1% jump in gasoline prices contributed to the rise.
Some of the rise in inflation this spring is expected to be temporary due to comparisons with very low levels last year when the economy was shut down.
Aside from earnings, the week should be pretty quiet. Federal Reserve speakers took a break and are in a darkened period ahead of a meeting in late April.
“It will really be a shift in attention to earnings and the story of inflation,” Boockwar said.
Last week, economic reports highlighted how strong the economic momentum could be in the second quarter. Retail sales for March increased by almost 10%, and unemployment claims were the lowest in recovery.
There is little data for next week, other than data on PMI production and services on Friday. However, the markets will continue to closely monitor the unemployment figures Thursday’s report on 576,000 new requests – the lowest level since the early days of the pandemic.
“The large drop in claims suggests that job separation rates could finally be normalized, which is a good sign for the April payrolls,” Barclays economists note. Surprisingly, 916,000 jobs were added in March, and economists said they now expect a series of reports showing that payrolls have increased by a million or more.
However, Stephen Stanley, Amherst Pierpont’s chief economist, says it may be too early to read too much damage data, and a report coming next week will be important.
He said the drop in damages was driven by a sharp drop in a number of states, including more than half in California and an even higher percentage of falls in Kentucky and Virginia.
“Unfortunately, I have no confidence that these moves will not be at least partially reversed next week,” he wrote. “Continuation of claims in pandemic special programs continues to sway up and down each week, and the latest reading, for the period ended March 27, represents the lower week.”
Equity investors will also monitor the bond market, where yields have fallen over the past week and then reversed. The 10-year treasury was at 1.59% on Friday, after falling sharply on Thursday.
Yields go against the price, and a ten-year bond is the most watched bond because it affects mortgage rates and other loans.
“Ten-year trade will now trade in the range of 1.50% to 1.75%,” Boockwar said.
“It will break below that if inflation is transient, and it will break above if it is proven to be different,” he added. “I think we’ve set the price in the latest inflation statistics, and then we’re going to take into account what the real world is saying from companies.”
Earnings: Johnson & Johnson, Passengers, Procter and Gamble, Netflix, Abbott Labs, CSX, Lockheed Martin, intuitive surgical, Tenet Healthcare, Philip Morris, Northern Trust, fifth third, KeyCorp, Comerica
Earnings: AT&T,, Intel, DR Horton, American Airlines, Union Pacific, Alaska Air, Pentair, Tractor supply, Celanese, Seagate Technology Biogen, Dow, Credit Suisse, SAP, Boston Beer, Mattel, Snap, Valero Energy, Freeport-McMoRan, Quest Diagnostics
07:45 Decision on the rate of the European Central Bank
8:30 a.m. Initial Unemployment Claims
10:00 a.m. Existing house sales
9:45 am Production of PMI
9:45 PMI Services
11:00 New house for sale