Wall Street was caught at the cross-currents of a strong economy and fears of higher capital gains tax last week. Nonetheless, major equity indexes managed to end the week almost unchanged.
The S&P 500 closed at 4,180.17 on Friday, down 0.10% for the week, while the Dow Jones closed at 34,043.49, down 0.60%. The Nasdaq composite closed at 14,016.81, down 0.20% for the week.
Wall Street began the trading week on high ground from the previous week but soon sold off, as market participants began to realize that vaccinations against Covid-19 are proceeding at a slow pace around the world, where infections continue to spread at a rapid pace.
The rise of overseas cases, most notably in India, fueled doubts about the sustainability of the economic recovery underway, prompting traders and investors to sell off economically sensitive stocks, which count for a big part of the S&P 500 and Dow Jones.
Adding to Wall Street's woes was the circulation of news of an impending increase in capital gains taxes, which hit technology shares hard.
Things changed at the end of the week as robust U.S. economic data, steady bond yields and better earnings reports revived the bullish sentiment of the previous weeks.
Will this bullish sentiment continue this week? It depends on three things, in my opinion. One of them is the information that will be revealed about the state of the U.S. economy, as many economic indicators are set to be released throughout the week. Early on this week, the government and private organizations will publish data on durable goods orders, manufacturing activity and home prices. Later on, the U.S. government publishes data on the labor market, Q1 GDP growth, consumer spending, employment cost and PCE Price Index. Traders and investors will be looking for confirmation that the U.S. economic recovery is gaining momentum and hints as to whether the relapse of inflation is permanent or transitory.
Then, there's the two-day Federal Open Market Committee (FOMC) meeting, which will provide traders and investors clues on Fed's interest rate policy.
Lastly, the earnings reporting season will continue with technology giants like Microsoft (MSFT), Facebook (FB), Apple (AAPL) and Alphabet (GOOG), all reporting during the week. These are broadly owned companies, as they are part of major equity indexes.
In short, Wall Street has plenty of news to absorb in the coming week. Any big surprise on the economic front, the Fed front or the earnings front could take investors for another coaster rally.
Disclosure: I own shares of Apple, Facebook, Microsoft, and Alphabet.
Read more here:
- Wall Street Rebounds as Tax Concerns Ease
- Intel's Product Roadmap Gains Momentum
- The US Economy Is Gaining Steam
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