Earnings reports and the Fed will test the market rally in the week ahead

Investors will see whether stocks carry their newfound momentum into the week ahead, as major retailers, including Walmart and Home Depot, report earnings and housing data dominates the calendar.

The Federal Reserve may also play a role. Minutes from its last meeting will be released Wednesday, and after April’s hotter than expected consumer and producer inflation, market pros will watch it closely.

Central bank officials are also scheduled to make comments, including Fed Vice Chairman Richard Clarida who speaks next Monday.

Stocks have been volatile. The rally on Thursday and Friday was unable to reverse the week’s heavy losses. The defensive consumer staples, financials and materials were on track for a positive week among major sectors. The worst performers were consumer discretionary, off about 3.7% for the week, and tech, which was down 2.2%.

Technology shares were among the best performers in Friday’s rally, up about 2.1%. Energy was the best performer, up more than 3%.

“Watch it with a certain amount of trepidation,” said Art Hogan, chief market strategist at National Securities. “It’s not like the things that spooked us this week, like inflation, are going away…I think the fact we bounced at the end of the week is constructive.” He added that he still expects the market to move forward with fits and starts.

But a positive for the market and the economy was the announcement on Thursday from the Center for Disease Control and Prevention that vaccinated people do not need to wear masks.

Fundstrat co-founder Tom Lee said in a report Friday that he now expects small caps and stocks that were hardest hit in the pandemic, like airlines and hotels, are ready to rise off the bottom.

He is still concerned about the tech sector, which big investors are using as a source of funds as they rotate into staples and health care.

The Fed minutes should basically be a replay of the last central bank meeting. But that was held before April’s Consumer Price Index was reported to be up a sizzling 4.2% year over year.

That last meeting also took place prior to the April employment report that showed just 266,000 payrolls, a quarter of what was expected.

“I think the Fed is willing to look through these weird data points. They’re thinking that one data point is not a trend,” said Joseph Song, senior U.S. economist at Bank of America.

But the markets have been focused on whether any data helps clarify how soon the Fed may start to talk about winding down its bond buying. That would be a precursor to slowly ending the $120 billion a month asset purchase program, and also a signal that it is one step closer to raising interest rates.

Hogan said when the weak employment report was released, the market view shifted away from the idea that the Fed could discuss tapering its bond buying when it holds its Jackson Hole Economic Symposium in late summer.

But the market moved back to that view when the hot CPI report was released Wednesday.

“We saw hot CPI, hot PPI,” said Hogan, referring to the producer price index. “That tells us the Fed could be behind the curve.”

The Fed has said it expects a transitory spike inflation, but concerns it may not be a temporary spike rippled through the market. But Hogan said investors took some comfort from declines in iron ore and copper, down nearly 2% for the week.

Retail earnings and housing

Big retailers report quarterly earnings throughout the week. Walmart and Home Depot will report Tuesday. Target, TJX and Lowe’s release results Wednesday, and B.J.’s Wholesale and Kohl’s on Thursday.

Another disappointing data point was Friday’s April’s retail sales, which came in flat with March. But they are still at a high level. Hogan said based on the sales report, retailers should have done well.

“You’re likely to hear the usual suspects are outperforming. It used to be Walmart, Target, Home Depot, Lowe’s,” said Hogan. He said now others have joined the list, like TJX and Gap, and should do well.

Besides earnings, there is housing data. The National Association of Home Builders sentiment index will be released Monday, and housing starts are published Tuesday. Existing home sales will be issued on Friday.

Hogan said depending on the data, it may help the homebuilders which fell hard in the past week. He noted that D.R. Horton and Hovnanian were both down for the week.

“The home building index is off 5% for the week, even with it being up 1% [Friday]. This is a red-hot sector that has lots of implications,” he said. “What’s good for home sales is good for auto sales. It’s good for Home Depot and Lowe’s.”

Homebuilders were part of a broad swath of the market that was bouncing Friday.

Scott Redler, chief strategist at T3Live.com, said by the end of the week, some of the growth and tech names were trading better, like Facebook and Alphabet.

“The S&P 500 held the 50-day moving average, which is constructive,” he said.

The S&P 500 came within about a dozen points of its 50-day, which is the average price of the last 50 closes. It is often a level that acts as support, but if it is broken, it can signal a negative trend.

The S&P 500 was down about 1.5% for the week at 4,173.85. The Nasdaq ended the week at 13,429.98, down 2.3% on the week.

“The tech sector, which has been under pressure, held its yearly uptrend earlier in the week. Today it felt a little better than the rest of the week,” Redler said Friday. “It doesn’t mean you can go into everything, but you can tell traders are picking away at better acting stocks at these prices.”

Week ahead calendar

Monday

Earnings: Hostess Brands, Lordstown Motors, Tencent Music

8:30 a.m. Atlanta Fed President Raphael Bostic on CNBC

8:30 a.m. Empire manufacturing

10:00 a.m. NAHB index

10:25 a.m. Fed Vice Chairman Richard Clarida at Atlanta Fed conference

4:00 p.m. TIC data

6:00 p.m. Dallas Fed President Rob Kaplan

Tuesday

Earnings: Walmart, Home Depot, Macy’s, Baidu, Take-Two Interactive, Trip.com, NetEase

8:30 a.m. Housing starts

11:05 a.m. Dallas Fed President Rob Kaplan

Wednesday

Earnings: Target, Lowe’s, JD.Com, Cisco, Shoe Carnival, TJX, Eagle Materials, Analog Devices, L Brands

10:00 a.m. St. Louis Fed President James Bullard on economy and monetary policy

2:00 p.m. FOMC minutes

Thursday

Earnings: BJ’s Wholesale, Kohl’s, Petco, Ralph Lauren, Applied Materials, Ross Stores, Deckers Outdoor, Hormel Foods, Palo Alto Networks

8:30 a.m. Initial jobless claims

8:30a a.m. Philadelphia Fed

10:00 a.m. Leading indicators

10:00 a.m. St. Louis Fed’s Bullard

10:30 a.m. Dallas Fed’s Kaplan

Friday

Earnings: Deere, Foot Locker, Buckle, VF Corp, Booz Allen Hamilton

9:45 a.m. Markit Manufacturing PMI

9:45 a.m. Markit Services PMI

10:00 a.m. Existing home sales

12:15 p.m. Dallas Fed’s Kaplan, Atlanta Fed’s Bostic, and Richmond Fed President Thomas Barkin on a panel

1:30 p.m. San Francisco Fed President Mary Daly