Stocks are rebounding off of a volatile week, which saw markets sell off roughly 5%, notching their worst week of performance since March. But now, analysts are eyeing a few key announcements in a jam-packed economic data week that could provide some insights for investors looking for signs the economy is beginning to recover.
Fed Chairman Jerome Powell is due to testify before Congress on Tuesday and Wednesday. Last week, Chairman Powell detailed a perhaps more dreary outlook than some investors had hoped for, with the Fed announcing it expects to keep interest rates at near zero through 2022. CFRA’s Sam Stovall suggests one catalyst that triggered so-called “announcement anxiety” in the markets was the Fed’s “pessimistic across-the-board projections for 2020” and interest rate projections that’s “causing investors to infer that the economic recovery will be weaker than anticipated.”
Edward Jones’ Nela Richardson points out that while the markets knew the depth of the downturn would be significant, “the length is something altogether different, so there’s a reaction there,” she says.
While those like Mark Hamrick, senior economic analyst at Bankrate.com, don’t think the chairman will say anything this week to dramatically change or add to his previous statement, the testimony may provide nuggets to “enlighten” investors, he suggests.
One big area in focus for analysts? Data showing strength in the consumer.
Retail sales data comes in on Tuesday, and those like Richardson suggest “while we’ve seen factories reopening and manufacturing start to climb back online, that does not mean that the other side of that transaction is ready to go back. If they build it, will people buy it?” she says. The answer may likely be yes, Richardson suggests, as consumer sentiment data has recently been pretty good—”That’s a good sign that that demand will eventually come back, but we’re going to be watching for that,” she notes. Hamrick also says retail sales are expected to bounce back, coming off of record 16.4% drop in April.
While retail sales are expected to rebound in May, those like Credit Suisse’s James Sweeney note “the recovery will only be gradual as reopening happens in phases and consumer behavior shifts. With confidence still depressed and the labor market impaired, consumption is likely to take years to recover despite recent fiscal relief helping to support household income,” Sweeney wrote in a note.
Housing starts and building permits will be announced Wednesday, and are also expected to advance in May. Edward Jones’ Richardson believes housing starts should be “an important indicator of future demand and the desire of builders to actually continue with building plans—that can be a favorable signal that’s been boosted by very, very low interest rates.”
Additionally, somewhat positive data came in from the Empire State Manufacturing Index on Monday, far surpassing expectations by jumping 48 points to around -0.2 (indicating fairly steady business conditions) in what some strategists noted looked like a “V-shaped recovery” in the data.
Also on the docket this week is the Philly Fed manufacturing index on Thursday, which “should extend May gains,” CFRA’s Stovall writes.
And, of course, strategists will be keenly watching the initial and continuing jobless claims reports on Thursday to gauge how quickly employment is rebounding (weekly jobless claims have steadily ticked down for the past couple months, but are still over 1 million).
In light of the selloff last week and market rebound on Monday, analysts say to expect volatility moving forward.
And for investors planning their way around that new volatility, Edward Jones’ Richardson has a word of advice: “We’re going to see sectors rebound in patches, we’re going to see occasional backboard steps in the reopening process. This should be part of our strategy in terms of investing: expect to see a set back here and there and an occasional pullback in the market,” she says.
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