What to know this week




A deluge of corporate earnings results and economic data due for release this week will test investors after the stock market’s latest record-setting rally.  

Traders have been pricing in the likelihood of a rebound in corporate earnings to coincide with the recent batch of better-than-expected economic data. Another round of firming economic data is expected this week, with the effects of the latest round of fiscal stimulus and recent roll-back of more social distancing restrictions bolstering economic activity. 

First-quarter corporate earnings likely benefited from this firming economic backdrop. Over the last several months, analysts have raised their aggregate S&P 500 earnings per share (EPS) estimates by a record 6.0%, according to FactSet data.

And first-quarter earnings season will kick off with quarterly reports from the big banks, which have seen some of the sharpest upward revisions to profit estimates. In fact, the financial sector saw the second-largest increase in bottom-up EPS estimates of all 11 sectors in the S&P 500, according to FactSet, coming second only to the energy sector. Financials’ EPS estimates were revised up by 13.1%, which marked the second-largest quarterly increase for the sector since FactSet started tracking the metric in 2002. 

The rosier outlook for bank profits coincided with a sharp move higher in Treasury yields as expectations for economic growth increased. The benchmark 10-year Treasury yield has advanced by more than 70 basis points for the year-to-date, with highest interest rates helping to boost the income banks derive from their core lending businesses. The S&P 500 financials sector has gained more than 18% for the year-to-date, or double the return of the broader market of the broader market, as the recent rotation into cyclical shares with earnings levered to a strong economic rebound lifted banking stocks. 

The banks reporting quarterly earnings results this week — including JPMorgan Chase (JPM), Goldman Sachs (GS), Wells Fargo (WFC) and Morgan Stanley (MS) – will likely already reflect a bottom-line boost from this higher-rate environment. Big banks’ first-quarter results will also likely get another boost from trading activity, given the stock markets record-setting rally and volatility in the bond markets so far this year. Fixed-income trading revenues already rose by the most in at least a decade across the bond trading divisions at Goldman Sachs, Citi, Morgan Stanley, JPMorgan and Bank of America last quarter, according to an Axios analysis

However, with the latest rise in rates now well known and priced in by investors, the next leg higher for bank stocks will likely require a new driver, said Deutsche Bank analyst Matt O’Connor. And last week, cyclical sectors already lost some momentum, as steadying rates prompted a resurgence in technology and growth stocks. 

“The next big catalyst for bank stocks is likely to be the return of loan growth. Many view loan growth as one of the biggest long-term drivers of bank earnings and of higher quality than the boost from higher interest rates,” O’Connor wrote in a recent note. “Loans are coming in weaker than expected in 1Q… and may be sluggish again in 2Q given likely further deleveraging from fiscal stimulus (and tax returns) and as [the] COVID-19 vaccine rollout will take a good portion of the quarter (likely pushing the expected surge of investment into 3Q or even 4Q).” 

“But, we are confident loan growth will pick up and expect a sharp rise in 4Q given a likely robust holiday season, closing of acquisitions and hopefully investment by companies to expand and take advantage of what should be a multi-year economic expansion,” he said. 

Major sources of loan growth will likely come from both consumer spending during the post-pandemic recovery, and from businesses looking to ramp up deal-making activity and corporate investment as uncertainty around the pandemic diminishes. 

Retail sales 

A key print on consumer spending will be released on Thursday, with consumption poised to get a boost from the delivery of stimulus checks and warming spring weather. 

Consensus economists expect the Commerce Department’s March retail sales report to show a monthly gain of 5.4% in March, according to Bloomberg data. This would follow a 3% drop in sales in February, as inclement weather and diminishing effects from the January round of $600 stimulus checks weighed on the month-over-month change in spending. Still, retail sales remained higher by 6.3% in February over the same month in 2020, with consumer spending one of the areas of the economy to bounce back fastest to pre-pandemic levels. 

NEW YORK, NEW YORK - APRIL 06: People walk by luxury retail stores in Manhattan on April 06, 2021 in New York City. New York Governor Andrew Cuomo and legislative leaders have reached a tentative agreement that would raise taxes on its wealthiest residents to meet budget shortfalls. If passed, the tax would make the state's millionaires pay the highest income rate in the nation. (Photo by Spencer Platt/Getty Images)

People walk by luxury retail stores in Manhattan on April 06, 2021 in New York City. (Photo by Spencer Platt/Getty Images)

“The latest round of stimulus checks, $1,400 per qualified individual totaling $410 billion, started to go out in mid-March, supporting another surge in spending,” Nomura economist Lewis Alexander wrote in a note Friday. “For non-core components, credit card data for food service spending suggests a sharp acceleration as warmer temperatures swept across the U.S. and state and local governments eased restrictions on activity.”

“Beyond March, spending should continue to be supported by reopening and continued stimulus check disbursement,” he added. “That said, in the months ahead, there could be at least some modest payback following the stimulus-driven surge in spending, similar to the January-February period.”

According to Bank of America, the March retail sales report could post an even faster gain than consensus economists are anticipating. 

“Based on aggregated BAC card data, retail sales ex-autos increased 11.1% [month-over-month] in March, showing the impact of stimulus, reopening and better weather,” economist Michelle Meyer wrote in a note. “This should set up for a very strong Census Bureau report; indeed, we see upside for Census even relative to our 11% growth rate.” 

During the seven days ended March 20, Bank of America credit and debit card spending surged 45% over the same period last year and 23% over the same timeframe in 2019, which the firm attributed largely to the disbursement of stimulus checks. Recent card spending data from JPMorgan Chase corroborated these trends: Spending on Chase cards was up about 24% year-over-year during the seven days ending March 19, accelerating from growth rates of less than 10% in January. 

Economic calendar

  • Monday: Monthly budget statement, March (-$720.0 billion expected, -$310.9 billion in February) 

  • Tuesday: NFIB Small Business Optimism, March (98.0 expected, 95.8 in February); Consumer Price Index (CPI) month-over-month, March (0.5% expected, 0.4% in February); CPI excluding food and energy month-over-month, March (0.2% expected, 0.1% in February); CPI year-over-year, March (2.5% expected, 1.7% in February); CPI excluding food and energy year-over-year, March (1.5% expected, 1.3% in February); Real average weekly earnings year-over-year, March (4.1% in February); Real average hourly earnings year-over-year, March (3.4% in February)  

  • Wednesday: MBA Mortgage Applications, April 9 (-5.1% during prior week); Import price index, month-over-month, March (1.0% expected, 1.3% in February); Import price index, year-over-year, March (3.0% in February); Export price index, month-over-month, March (1.0% expected, 1.6% in February); Export price index, year-over-year, March (5.3% in February); Federal Reserve releases Beige Book 

  • Thursday: Initial jobless claims, week ended April 10 (700,000 expected, 744,000 during prior week); Continuing claims, week ended April 3 (3.700 million expected, 3.734 million during prior month); Retail sales advance month-over-month, March (5.1% expected, -3.0% in February); Retail sales excluding autos and gas, March (6.5% expected, -3.3% in February); Empire Manufacturing Index, April (18.0 expected, 17.4 in March); Philadelphia fed Business Outlook index, April (2.7% expected, -2.2% in March); Industrial production, month-over-month, March (2.7% expected, -2.2% in February); Capacity Utilization, March (75.6% expected, 73.8% in February); Business inventories, February (0.5% expected, 0.3% in January); NAHB Housing Market Index, April (84 expected, 82 in March); Total Net TIC Flows, February ($106.3 billion in January); Net long-term TIC flows, February ($90.8 billion in January) 

  • Friday: Housing Starts, March (1.602 million expected, 1.421 million in February); Building permits, March (1.750 million expected, 1.720 million in February); University of Michigan Consumer Sentiment survey, April preliminary (89.0 expected, 84.9 in March) 

Earnings calendar

  • Monday: N/A 

  • Tuesday: Fastenal Co (FAST) before market open 

  • Wednesday: JPMorgan Chase (JPM), Goldman Sachs (GS), Wells Fargo (WFC), Bed Bath & Beyond (BBBY) before market open 

  • Thursday: Bank of America (BAC), Charles Schwab (SCHW), Truist Financial Corp (TFC), The Progressive Corp (PGR), US Bancorp (USB), UnitedHealth Group (UNH), PepsiCo (PEP), Delta Air Lines (DAL), BlackRock (BLK), Rite Aid (RAD), Citigroup (C) before market open; Alcoa (AA) after market close 

  • Friday: Morgan Stanley (MS), Bank of New York Mellon (BK), PNC Financial Services Group (PNC), Kansas City Southern (KSU), Citizens Financial Group (CFG), State Street Corp (STT), Ally Financial (ALLY) before market open 

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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