Powell is scheduled to speak at 2:20 p.m. ET at the Just Economy conference
U.S. stocks on Monday were seen trading higher to start the week and month as evidence mounted that American corporations were rebounding from the deadly COVID pandemic, portending a strong bounce for the overall economy in the second half of 2021.
However, fears of a sustained rise in inflation and concerns that much of the economy’s rebound has been priced into equity valuations has created some unease among investors and has the potential to knock stocks around.
How are stock benchmarks performing?
On Friday, the Dow DJIA, -0.54% posted a weekly decline of 0.5%, but notched a 2.4% gain in April, while the S&P 500 SPX, -0.72% was virtually unchanged, but gained 5.6% last month. The Nasdaq Composite Index COMP, -0.85% registered a weekly loss of 0.4% but jumped 7% in April.
What’s driving the market?
Investors have been keenly focused on the recovery of U.S. corporations in the aftermath of the COVID pandemic, with some of the biggest companies affirming that a genuine rebound is under way.
That rebound was at least partially on display by the performance of investment conglomerate Berkshire Hathaway BRK.A, -1.29% BRK.B, -0.95%, which reported a 20% jump in its operating profit, rising to $7.02 billion from $5.87 billion in the year prior.
Berkshire over the weekend also reported first-quarter net income of $11.7 billion, compared with a loss of $49.7 billion, in the year-earlier period.
Performances like that of Berkshire’s has helped to bolster confidence in equities at the start of the month that has traditionally been associated with a comparatively weak six-month seaonsal stretch of trading starting in May.
“We look for a positive start of trading in May as investors are likely to adopt to sideways movements, while staying clear of ‘Selling And Going Away In May’,” wrote Peter Cardillo, chief market economist at Spartan Capital Securities.
Looking ahead, investors are watching for further commentary from Federal Reserve Chairman Jerome Powell, who is scheduled to speak at 2:20 p.m. Eastern Time at the Just Economy conference, which is being held virtually.
Anxieties surrounding the Fed’s response to a stronger economy also has investors on edge after Dallas Fed President Robert Kaplan said Friday that he believes it is time to discuss tapering the central bank’s asset purchases.
Bernard Baumohl, chief global economist at The Economic Outlook Group, recently wrote that the Fed will have to walk a fine line as it eventually dials up interest rates and tapers an asset-purchasing program that has helped to support markets during the height of the pandemic-inspired stock selling in March.
“So what should the Fed do at this stage? Frankly, nothing major at this time. But as the economy regains its footing, Powell will face one truly vexing issue later this year: How do you reduce asset purchases without causing major turbulence in the bond market?” wrote Baumohl.
On the economic data front, market participants await manufacturing reports in April, headlined by the manufacturing index from the Institute for Supply Management due at 10 a.m., released after Markit’s manufacturing index at 9:45 a.m.
Last week, a weaker tone of manufacturing and services activity in China and recession in Europe were blamed for a slide in stocks on Friday.
Which companies are in focus?