Wall Street begins the new week on the heels of last Friday's big rally that helped major averages recover from the worst sell-off of 2021.
Will the rally follow through, pushing Wall Street to new highs? I think a lot will depend on news releases in four key areas: housing, corporate earnings, mergers and acquisitions (M&A) activity and monetary policy.
Housing
The U.S. housing sector has been strong during the Covid-19 recession. Sales of previously owned houses rose by 0.6% month over month to 6.69 million units in January. In addition, the median existing-home price increased by 14.1% year over year to $303,900 in January as home inventory dropped by 26% to 1.04 million homes, the lowest on record.
Homebuilder stocks have been strong, too, with shares of D.R. Horton (DHI, Financial) and Lennar (LEN, Financial) beating the S&P 500.
But things have been cooling off in March and April for a couple of reasons. One of them is rising long-term interest rates. According to the Mortgage Bankers Association of America, fixed 30-year mortgage rates reached 3%, up from 2.5% six months ago. Then there's the lack of inventories, as demand for existing homes has outstripped supply.
Investors will get the chance to see whether these conditions have eased in housing starts, building permits and existing home sales, which come out during the week.
Earnings
With more than 80% of publicly listed companies having already reported earnings, the earnings season is almost over. But there are a couple of large companies reporting in the retail sector this week, including Target Corp. (TGT, Financial) and Walmart (WMT, Financial).
Both Walmart and Target have been big winners of the Covid-19 pandemic crisis, so investors will be looking for clues to figure out whether they will continue to thrive beyond the pandemic - especially Walmart, which seems to be running out of profitable investment opportunities.
Quo Vadis President John Zolidis, an analyst that I follow, remains bullish on Target and bearish on Walmart.
M&A
Mondays are usually the days new M&A deals fuel a great deal of buzz on Wall Street. This Monday, AT&T (T) is expected to announce the merger of WarnerMedia with Discovery (DISCA). Presumably, the merger will help AT&T compete effectively against rival media giants Netflix (NFLX) and Disney (DIS).
Monetary Policy
Accommodative monetary has been a critical factor behind the quick recovery of the American economy from the Covid-19 recession and a vital driver of the rally in U.S. equity and debt markets.
The Fed has repeatedly reaffirmed its intention to continue this policy longer, even in the face of a recovering economy and higher inflation.
On Wednesday, the Fed will release the minutes of its April meeting, providing investors with details that justify its accommodative policies. Any surprises could add to Wall Street's anxiety over monetary policy, following last week's hot inflation numbers.
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