The stimulus outlook could boost the stock market and interest rates in the coming week

New York Stock Exchange (NYSE) on Wall Street on January 12, 2021 in New York City.

Angela Weiss | AFP | Getty Images

The outlook for a large government spending program could continue to strengthen the stock market and put pressure on interest rates next week.

Earnings season is starting to close, but some big names have yet to report.

WalmartEarnings on Thursday should provide a good window for the consumer, as would the government’s January retail report, also expected on Wednesday.

The Federal Reserve is publishing the minutes from the last meeting on Wednesday afternoon, and investors will investigate them for any insight into the central bank’s view of inflation.

Two dominant themes amidst stimulating looks

Inflation and rising interest rates have been a dominant topic for investors lately and are becoming more and more as the market has upgraded its view of how many fiscal stimulus can be signed into law.

“The market is waiting to see how big the package will be. It will matter. They can get it through reconciliation,” said Quincy Krosby, chief market strategist at Prudential Financial.

Krosby said Democrats could submit a boost as part of budget reconciliation, meaning they could approve it by a simple majority, instead of relying on negotiations with Republicans.

Some in the markets predicted a package of a billion or less dollars if there were negotiations, but that now seems unlikely. Strategists have changed their view of the proposed $ 1.9 trillion package.

“There is less pressure on President Biden’s proposal by moderate Democrats than we expected, so the price of about $ 1.5 trillion seems likely, which is more than we initially thought,” Cornerstone Macro policy analysts note.

They say they expect the bill to surface during the week of February 22 and that it could become law by the first week of March. Investors will remain focused on its progress through Congress.

Market professionals expect that the larger the spending package, the bigger the pop will be in economic growth in the short term. This helped to bring the yields in the treasury, which are moving against the price, to a higher level.

It has also raised concerns about inflation.

Inflation and yield growth

Last week, Yield of 10 years – a key indicator – for the first time since March it touched 1.2%. It briefly touched that level earlier in the week, but returned to its final trading hour on Friday.

Yields are growing on optimism to improve the economy, but also as inflation expectations rise.

“If you think about big drivers, they’re connected – vaccines, incentives and inflation,” said Michael Schumacher, head of rate strategy at Wells Fargo Securities. “If there’s more talk from DC about moving the stimulus package forward, it sets the pace for yield growth.”

The market is worried about the economy going hot, as it could be the trigger for a change in Fed policy.

At the same time, the Fed said it would tolerate inflation above the 2% target.

Krosby of Prudential Financial said the market will also pay attention to the producer price index on Wednesday although that is usually not a big factor.

“Since there is such a discussion about inflationary trends, I know the CPI [consumer price index] came comfortably, but the producer price index is coming and we’ll see if that’s mitigated, ”she said.

“Obviously supply chains are being re-established and inventories are being built,” Krosby said.

Consumer inflation in January was at an annual level of 1.4%.

Housing statistics

Housing data are also dominant in the calendar in the week shortened to the holidays.

The National Association of Home Builders released data on housing market indices on Wednesday, measuring the mood around market conditions for the sale of new houses.

On Thursday, the government will publish data on unresolved house sales and building permits. Finally, the National Real Estate Association will release existing data on home sales on Friday.

Upcoming hearing on GameStop and shortcuts

Stocks were higher over the past week, and energy, technology and finances were at their best. The S&P 500 rose 1.2%, ending the week at 3,934.

There were some hot spots in the market stocks of cannabis which has become the latest target the Reddit trading community. Shares rose on Wednesday, adding an already high gain in the last few weeks before giving up some of those gains.

Investors will also focus on a hearing Thursday before the House Financial Services Committee on wild trading recently at GameStop and other very abbreviated names.

Robinhead’s CEO is expected to testify, aare executives from Melvin Capital Management and the Citadel.

The frantic activity of some small and short stocks has raised concerns about market overheating. But Ari Wald, head of technical analysis at Oppenheimer, said the progress of the wider market was intact.

“Overall, this is a bull market. I think the stability of progress is underestimated,” Wald said. He said market techniques are healthy. The breadth is broadly based and there is cyclical leadership.

“Sectors with low volatility and high dividends are at risk,” Wald said. Inventories of utility and consumer stocks, which correspond to that category, were lower during the week.

The market has also awaited the outcome of a lawsuit to recall President Donald Trump, and is not expected to react.

Calendar in advance

Monday

President’s Day

Markets closed

Tuesday

Earnings: CVS Health,, Occidental Petroleum, AIG, Budget Notice, Lattice Semiconductor, American food, Advance Auto parts, volcanic materials, Palantir, Agilent, La-Z-Boy

8:30 am Production of the Empire

11:10 Fed Governor Michelle Bowman

12:30 p.m., Fed Kansas City President Esther George

13:00 Fed Dallas President Robert Kaplan

16:00 TIC data

Wednesday

Earnings: Hilton Worldwide, Synopsys, Pioneer Natural Resources,, Cheese factory, Tangier factories, Hyatt hotels, Owens Corning, Baidu, CF industry, marathon oil, Analog devices

7:00 Mortgage Applications

08:30 Retail

8:30 PPI

9:15 am Industrial Production

10:00 a.m., Fed Boston President Eric Rosengren

10:00 a.m. NAHB survey

14:00 FOMC minutes

Thursday

Earnings: Walmart,, Applied materials, Cabot oil and gas, Barrick Gold, Southern Co, Waste Management, Marriott, Dropbox, Trip Advisor, Consolidated Edison, Credit Suisse, Barclays, Airbus, Daimler