Profit Season in Financial Markets

Profit Season in Financial Markets

Market volatility looks set to remain elevated in the coming week as rotation trades continue to play out amid the vaccine rollout and reopening of the economy.

On the data front, investors will be watching reports for April on personal spending, durable goods and home sales to gauge the strength of the economy as the second quarter got underway. Earnings season is winding down, but there are still some retailers left to report. There will also be a handful of speeches by Federal Reserve policymakers, including Governor Lael Brainard, who is set to speak at a virtual cryptocurrency conference. Here is what you need to know to start your week.

Market rotation

With a few days left in the month, the tech heavy Nasdaq Composite and the S&P 500 are down month to date for May, losing 3.5% and 0.6% respectively. In contrast, the Dow Jones Industrial Average has risen around 1% so far this month as inflation concerns loom overgrowth names.

Investors have been spooked by concerns about the future path of Fed policy in the face of rising inflationary risks. Last week’s Fed minutes suggested some policymakers were ready to talk about reducing stimulus by tapering bond purchases.

Analysts expect the rotation out of growth and into value to continue as the economic recovery takes greater hold.


Earnings season is continuing to wind down but there are still some retailers left to report, most notably Best Buy (NYSE:BBY), Costco (NASDAQ:COST), and Nordstrom (NYSE:JWN).

Economic data

The key data to watch in the coming week will be Friday’s personal income and spending data, which includes the personal consumption expenditures (PCE) index. The core PCE, excluding food and energy, is the Fed's preferred inflation measure for its 2% flexible average target. It was up 1.8% in the 12 months to March.

The data could test the Fed’s resolve to keep up asset purchases at their current pace in the face of an economic and inflation rebound.

Data on consumer confidence, house prices and new home sales are out on Tuesday, while figures for durable goods orders and initial jobless claims will be released Thursday.

Fed speakers

Fed Governor Lael Brainard is to speak about digital currencies at the virtual Consensus by CoinDesk Conference on Monday; given recent volatility in the cryptocurrency market her comments will be closely watched.

Elsewhere Atlanta Fed President Raphael Bostic and Kansas City Fed President Esther George both speak on Monday.

Fed Vice Chairman Randal Quarles is due to testify on the Fed’s supervision and regulation of the financial system before the Senate Banking Committee on Tuesday.

Created on 28th May 2021