Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.
Equity markets are off to a strong start in April. The notion that central banks will remain patient and robust data last week helped bolster the case for a swift economic recovery. This, despite the prospects of higher corporate taxes that could be a shock to corporate earnings and equity valuations.
Perhaps the most notable development last week has been that bond yields drifted down despite March's unexpected payroll surge. While Fed officials and minutes continue to suggest that the Fed will take a very cautious approach and "look through" very positive and encouraging economic data, we are detecting a subtle shift toward more fully discussing the path to tapering asset purchases. In comments this week, Chairman Powell implied that sustained job growth in the neighborhood of 916K in March would be sufficient to substantiate further progress. We are no longer in "not even thinking about thinking about" land. The economy is reopening. We are likely to see a sharp upward movement in both employment and inflation over the next several months. Time will tell, but for now, the Fed is sticking to its patient stance. It will await widespread improvement of several labor market indications to prove that we are well on our way to a broad-based and inclusive recovery before we get a shift in policy. It remains to be seen how far the market is willing to believe it.
This week will be relatively busy for Fed speak ahead of the blackout period for the April FOMC meeting. The main event will be the publication of March's CPI report. This week will also mark the beginning of the first-quarter 2021 earnings season, with an early focus on banks and other financial companies. We expect the combination of fiscal stimulus, economic reopening, and moderating weather temperatures to continue to boost the incoming data.
Data deck for April 10–April 16: